CONTENTS. Chairman s statement 02. CEO s statement 04. Background on Towergate Insurance 07. Acquisitions 09. Towergate PartnershipCo Limited Board 11

Transcription

1 ANNUAL REPORT 2012

2 CONTENTS Chairman s statement 02 CEO s statement 04 Background on Towergate Insurance 07 Acquisitions 09 Towergate PartnershipCo Limited Board 11 Towergate Insurance Executive Committee 13 Business review 14 Directors report 19 Statement of directors responsibilities in respect of the directors report and the financial statements 20 Independent auditor s report to the members of Towergate PartnershipCo Limited 21 Consolidated statement of comprehensive income 22 Consolidated statement of financial position 23 Consolidated statement of changes in equity 24 Consolidated statement of cash flows 25 Notes to the financial statements 26

3 THE CHAIRMAN Right across our business there is a passion to improve and a commitment to deliver value to our customers and thereby to create value for our shareholders. In my statement a year ago I wrote that we could not expect a material improvement during 2012 in the operating environment for our principal customers, being individuals running small and medium-sized businesses, and that we should anticipate limited rate increases and strong competition for new business against a backdrop of constrained premium growth. This indeed turned out to be the case which makes Towergate s 4% increase in operating profit and 5% growth in gross written premium in 2012 all the more creditable. This progress reflects the implementation of the various legs of our strategy. We have continued our programme of regional broker consolidation, adding 27 new businesses during 2012 to the 13 that joined Towergate last year. We have also been focussed on capturing our retail team s awareness of the needs of their customers to improve the propositions offered by our underwriting zones both to brokers within Towergate, and externally. Last year external business 02

4 THE CHAIRMAN accounted for 51% of the total premiums written by our underwriting division. These factors were reflected in the growth achieved in both our retail and underwriting divisions, despite the impact of the subdued economy on sums insured and rates. Alongside this growth we have seen significant investment in the business as we look to make our operations more efficient exceptional costs related to group reorganisation amounted to 17m with an accompanying 0.4% point reduction in our operating expense ratio. We took a significant step forward last year with the integration of CCV into the Towergate Retail division. CCV operates through 30 offices across the United Kingdom and last year accounted for 263m gross written premium. Its business is very similar to Towergate s Retail division and it made good sense to bring together the support functions of the two businesses and manage them through one broking division, whilst recognising that the Towergate and CCV businesses retain their own distinctive characteristics. Paymentshield has continued to grow both income and operating profits by innovating with new distribution channels and products to reduce its dependence on business derived through mortgage brokers. Over the last two years Paymentshield has raised income by 13.5% and profitability by 8.3% whereas the Council of Martgage Lenders expects the underlying mortgage market to have only grown by 6.6% over this period (measured by gross mortgage advances). With profits of 55m, it is a significant business in its own right. Our Network division is the largest networked grouping of general insurance brokers in the UK. With brokers facing ever increasing complexity regulatory and financial to name but two aspects and a bewildering array of product propositions there is much they can gain from the support services and tailored products offered by our Broker Network and Countrywide businesses. We recognise, however, that we must provide tangible evidence of that value-add both to our broker members and our partner insurers and 2012 was a difficult year for the division with operating profits down 24% on marked the first full year with Mark Hodges as our Chief Executive. On behalf of the Board I would like to commend him and his management team for the considerable progress the business has made in a difficult environment. Right across our business there is a passion to improve and a commitment to deliver value to our customers and thereby to create value for our shareholders. To achieve the stretching objectives we have set ourselves we need the right combination of people, processes and systems. As set out later in this report, Mark has expanded his executive team with new and highly experienced leaders in the areas of finance, human resources, systems and risk management. The team has devoted considerable energy to defining how to manage effectively across the breadth of Towergate s activities, in order to achieve both economies of scale and the synergies inherent in complementary businesses whilst at the same time retaining the distinctiveness of local brokers and specialist product offerings. It has also sifted the myriad of potential opportunities to improve the focus on a limited number of major change projects that will make a considerable difference to our business. Our Board recognises that being a leader in our field carries with it responsibilities across a broad spectrum. To our customers, to provide sound advice, good value products, and high standards of service. To our regulator, to support them in the achievement of their statutory objectives. To our people, to provide the opportunity for stimulating work that is rewarding both financially and personally. To our financiers, to operate within appropriate risk tolerances and deliver against our commitments. To the communities of which we are a part, to put something back by engaging actively in community life. To our shareholders, to create value that is both realisable and sustainable. Maintaining an appropriate balance across these objectives is the Board s task and I am grateful for the support of my fellow directors and their commitment to our business. We achieved a considerable amount in 2012, both in the progress made during the year and by laying the foundations for sustained progress across future years. That achievement reflected the enthusiasm, commitment, and hard work of our people across the whole business and I would like to thank everyone, on behalf of the Board, both for what they did and what they are continuing to contribute to our success. Alastair Lyons Non-executive Chairman 03

5 THE CHIEF EXECUTIVE officer Once again it has been a year of exceptionally hard work from the dedicated team of employees within Towergate. I would like to thank them for their excellence and continued ability both to embrace change and challenge the status quo. Reflecting on my first full financial year as Group CEO of Towergate, I am delighted to be reporting on a year of real progress towards our strategic goals. We have built on our market leading positions and improved our performance against the backdrop of a challenging operating environment for our customers. This momentum has once again been sustained by the can-do culture of our organisation - a blend of entrepreneurialism and professionalism which drives the pace at which we all work. As a company, we have grown rapidly over a period of 15 years to become one of the UK s largest advisory insurance brokerages, generating more than 250m in income across more than 200 product lines. We have significant positions across a range of UK specialist insurance markets, being the fourth largest distributor of Marine, the second in both the Caravan and Care Homes markets, as well as the leading market provider of Car Hire Excess and Military Kit. Our Underwriting Division is the UK s largest MGA with more than 615m gross written premium under management, three times the size of the next largest player in the UK. Paymentshield is the leading provider of payment insurance and household insurance 04

6 THE CHIEF EXECUTIVE officer to the mortgage intermediary market - at 24% it has three times the market share of our nearest competitor. Our strategy Towergate is a commission-driven insurance business with the bulk of our earnings being traditional broker commissions paid on insurance policies sold through our retail businesses. The better our products, services and distribution management, the greater our opportunity to grow income through our customer relationships. Our distribution and underwriting scale gives us unparalleled market data and insight. This enables us to develop products and services that meet the needs of more than 3 million insurance buying customers. We intend to maintain growth in our defined markets by continuing selectively to acquire successful businesses. Our insurer partners enjoy cost-effective and profitable access to markets which are hard to access. We perform the majority of the roles in the insurance supply chain, but we do not take the ultimate capital risk. Our focus has been on SME and Specialist Personal Lines making these areas a stronghold for us. We will continue to be focussed and build on our expertise as we grow a year of delivery 2012 has been a year of delivery based on these solid foundations for growth: Group gross written premiums of 3.1bn, a 5% increase on 2011 Continued growth in Group operating earnings (+4%) driven by increased revenues and improved operational efficiency Group income growth of 2% with strong performance by our Underwriting, Retail and Paymentshield divisions in a challenging environment Improvement in operating margin to 36.8% Change Programme already delivering incremental organic operating earnings Continued momentum in our proven acquisition strategy, with 27 deals successfully completed in 2012 As previously notified and in line with industry best practice, we have converted our accounting to IFRS format which makes our financial statements comparable with listed companies. Group financial performance Retail Within Retail, income was broadly flat at 256.8m ( 255.6m ) with operating earnings up 9% to 80.3m ( 73.9m ). This was a good result given the continuing challenges faced by UK SMEs, the improvement in earnings reflecting our drive to improve efficiencies throughout the division. In our Broking division we successfully integrated 25 acquisitions during the year, having also consolidated our CCV and Towergate businesses, as announced last August. New business and retention continued to be challenging in a fiercely competitive and price driven market. A focus on cost management has seen our operating margin improving from 28.9% in 2011 to 31.4% in Our Sales and Service division, which primarily serves the end customer via the telephone and over the internet, continues to grow in both specialist personal and commercial lines. In 2012 we developed a number of significant affinity partnerships, including relationships with RAC and Cancer Research UK. We also sought to optimise our insurer arrangements and worked hard to improve efficiencies in our contact centres that handle both SME lead generation and sales. In Towergate Financial, income was flat year on year with operating earnings up 25.6% against To maintain income and grow profit in a very challenging investment and mortgage market was an exceptional result. Underwriting In Underwriting, income was up 13% at 87.2m ( 76.9m ) with operating earnings up 17% to 42.4m ( 36.4m ). Income growth was driven by internal business which was significantly ahead of 2011, consistent with our strategy of leveraging our unique business model. During 2012, the division successfully renewed 250m of insurer capacity on 5 year deals, with diversified and supportive carriers, at competitive terms. This brings the total capacity renewed over the last two years to 500m. I believe these long term arrangements are unparalleled in terms of length and size of commitment within the market and represent the strength of our position as the UK s largest MGA. We recruited and deployed underwriters in both internal and external broking offices to increase quote activity and conversion. This is an example of how our Retail and Underwriting divisions work together to gain competitive advantage. On 31 December 2012, we sold PowerPlace to Open GI, an IT solutions business. Open GI will provide PowerPlace with the technical resources and infrastructure it requires to move into its next phase of development. We will continue to work closely with PowerPlace as part of our strategy to grow e-traded business. Paymentshield In Paymentshield, income was up 7% at 72.2m ( 67.5m ) with operating earnings up 9% to 55.3m ( 50.6m ). This is once again an excellent performance against the backdrop of a depressed mortgage market. The business has made sound strategic progress in 2012, with the launch of a new household panel proposition and single tie contracts signed with the Openwork and Sesame Networks. On 01 October 2012 we transferred the management of the Berkeley Alexander and British Insurance businesses into Paymentshield. This combines relevant resources optimising knowledge and infrastructure synergies. Given the way in which Paymentshield partners with its customers throughout the mortgage process, we believe that Paymentshield is well positioned to maintain its sales momentum in this evolving sector. 05

7 THE CHIEF EXECUTIVE officer Networks In Networks, income was down 19% at 16.6m ( 20.5m ) with operating earnings down 24% to 10.0m ( 13.1m ). This fall in income reflects a change in Partner Insurer strategy. The Broker Network and Countrywide brands remain leading propositions in the market both in terms of size and breadth of service. The Group believes that there will be an increasing demand for these services as we see the cost and complexity of regulation rise. We have made difficult decisions in the short term to protect the long term future of the Network. We need to ensure that members have access to the best products at the most competitive prices. We have reluctantly parted company with insurers who have been unable to recognise the benefit of the network model and value the collaboration of more than 600 broker members. Network continues to see growth from new members and upgrades to higher value propositions, with 44 new members joining in I am also delighted to welcome Gary Duggan as the new CEO of the division. He will work closely with his senior team to ensure that the Network division continues to innovate and support UK broking through the representation of members on issues that make a difference to their ability to serve their customers and grow profitably. Operational improvement Change remains part of the everyday running of our businesses. It has been embraced by our people and by our customers as integral to our aim to maintain Towergate s growth and sustain continued improvement in the service we provide saw the launch of our Change Programme, a series of projects aimed at increasing EBITDA across the Group. By bringing in new people, and establishing new processes and structures, the programme contributed to the growth of operating earnings in 2012, realising value across both costs and revenue through improved efficiency and income growth. These benefits will increase as they achieve their full year impact in Towergate is a compelling story and an irresistible opportunity for those looking to challenge themselves and the market status quo. In 2012 we welcomed as members of the Executive Committee Keith Jackson as Group Risk and Compliance Officer, previously CRO at Bupa, and Jill Lucas as Chief Information Officer, previously CIO of Belron International. Subsequent to the year end, in addition to the arrival of Gary Duggan, Lindsay Forster joined as Group Marketing Director, previously Products and Marketing Director for Commercial Banking at Lloyds Banking Group. Acquisitions We continued to invest in UK high street broking, completing 27 acquisitions by the end of the year, 25 of them joining our retail broking division and 2 joining our underwriting division. Within a challenging market for SME-focused UK brokers, we are spotting exciting opportunities to bring businesses into the Group in 2013, providing them with the infrastructure and support they require to continue their development. Our capability allows us to integrate numerous acquisitions and derive the extra value that can be realised as part of the wider group. Towergate our wider role In 2012, Towergate customers, employees and local communities together donated 1.5 million to good causes via our charitable foundation, taking our total since 2005 to in excess of 6 million. This is a hugely impressive amount against a backdrop of increasing pressure on purse strings. Within Towergate, this achievement was reached by running, singing, donning wigs and squeezing into onesies. Our partner charities - Help the Hospices, Cancer Research UK, Childline and Great Ormond Street Hospital - work closely with us so that we may plan for their future funding requirements. We re also proud to support military related charities through the Military Charities Grant Fund. It is testament to the culture of our business that we prioritise our charitable pursuits within busy working weeks. We have said before that this is very much part of the DNA of the business and it is yet another personality trait that helps Towergate stand out from the crowd. Long may it continue. An important part of what we do is to provide peace of mind and reassurance for our customers, whether this involves protecting their treasured holiday home or repairing their cherished caravan. Providing this cover has been at the heart of the growth of Towergate as we have expanded into leading positions in a number of specialist insurance product markets. Outside of the day to day routine of the workplace, this remains the reality of what we are trying to achieve. As we look to grow Towergate, we should never forget the role we play in supporting businesses and families should the worst ever happen. I take this role that we play very seriously and believe that we have created for ourselves a responsibility to help promote the insurance industry at large, the role it plays in wider society, the contribution it makes to UK GDP and the possibilities it holds for the new generations of graduates and school leavers alike. Thanks Once again it has been a year of exceptionally hard work from the dedicated team of employees within Towergate. I would like to thank them for their excellence and continued ability both to embrace change and challenge the status quo. I am genuinely enthused by the scale of the opportunity and the potential within Towergate. The sense of what is yet to come drives all of us and is also what makes this an exciting business to lead. I look forward to another year of notable progress. Mark Hodges Chief Executive Officer 06

8 Background on Towergate Insurance KEY FACTS Retail division One of the UK s largest intermediaries for commercial and specialist personal insurances, incorporating Towergate Financial, our financial advisory business Underwriting division The UK s largest underwriting agency, providing specialist insurance products for brokers, without carrying the risk which is passed back to our insurer Partners Networks Broker Network and Countrywide provide products and services to brokers and together comprise the UK s largest network membership Paymentshield A leading provider of insurance products to the mortgage sector GWP bn 3.1bn INCOME m 438.5m SPLIT OF INCOME Other Paymentshield Broking OPERATING EARNINGS m 161.0m Networks Retail OPERATING EARNINGS / INCOME 36.3% 36.7% Underwriting Financial Services CCV Sales and Service 07

9 Background on Towergate Insurance Did you know Over 3000 Towergate employees are members of the CII, with more than 900 currently studying for CII qualifications Towergate was the first Broker Background to achieve Chartered on status Towergate in 2007 and our Underwriting Insurance Division was the first Chartered Insurer in 2010 making us a unique holder of these two titles Every one of our customer facing team holds at least one RYA (Royal Yachting Association) qualification Towergate s lorry dashboard CCTV footage recently assisted the successful prosecution of a gang of crash for cash fraudsters In 2012 insurance4carhire.com sold a total of 58,524 years worth of car hire excess insurance - that s over 500 million episodes of Top Gear We insure 33% of GP surgeries in the UK CHARITY FINANCIAL UPDATE 349,692 in 2012 FINANCIAL UPDATE 301,318 in 2012 Since January 2008 Towergate Charitable Foundation has donated more than 1 million to support a team of world class scientists based in Oxford, headed up by Professor Adrian Harris. Towergate has supported redevelopment projects within Great Ormond Street Hospital and has funded two new isolation rooms on the cardiac ward. This provides privacy and peace to children and their family following major surgery. FINANCIAL UPDATE 298,307 in 2012 FINANCIAL UPDATE 352,926 in 2012 Towergate has funded the training of over 625 Childline volunteer counsellors since Help the Hospices is the leading charity in supporting Hospice Care. Towergate has invested heavily in the future of Hospices by funding, training and developing future hospice leaders. 08

10 ACQUISITIONS In 2012 we made 27 acquisitions, buying businesses of varying sizes and specialisms across the UK. Acquiring businesses has always been at the heart of the Towergate story, having completed more than 275 since the company was founded. We pride ourselves on our efficient due diligence and effective integration. In 2012 we ve welcomed new colleagues, embraced new brands and grown our regional footprint. Welcome to Towergate Gill Knott 09

11 ACQUISITIONS TESTIMONIALS It was the right time for me to sell my business, Towergate guided me through the process from start to finish and provided the transition my staff and clients required. This allowed me to plan my exit from the business and leave me with the feeling that all I have worked for will not disappear as soon as I have gone. Macfarlane Gray Corporate Finance Following the sale of William Rogers Insurance Brokers to Towergate I have been hugely impressed with the dedication and support provided by Nick Hatch and the South West management team. What could easily have been a traumatic experience for me and my team has been made as smooth and painless as possible. I have every confidence that these are the people that will ensure the business continues to flourish long into the future. William Rogers Insurance Brokers Following the purchase in November 2012 of Dawson Whyte, we have had excellent on-going support from the Scottish executive team during the integration process. So much so that we already feel part of the team and it has been refreshing to see the changes that have been adopted and the positive direction the business has taken over the past few months. The clients seem happy with the takeover and hopefully the improvements in market leverage and professionalism will continue to impress. I am confident we will deliver what is expected of us, in what has turned out to be difficult trading conditions and make our staff and clients more secure moving into a rising market in 2013 and beyond. Dawson Whyte We are really happy with the way things have gone since moving to Towergate last November. As a small family firm this was always going to be tough decision. We are confident after being with Towergate for six months that we have made the right decision. The improved access to insurer markets, to better training and the overall feeling of being part of a bigger group, gives us more confidence in the market place going forward. A big thank you to all our new friends and colleagues at Towergate. Becoming part of Towergate has given our business a much greater focus on doing the right things better. Towergate has empowered us to make the business grow, giving us all a positive sense of achievement. Our new mantra is make it happen rather than wait for it to happen. JBI International Insurance Brokers Towergate Grenville 10

12 Towergate PartnershipCo Limited Board

13 Towergate PartnershipCo Limited Board 01. Alastair Lyons, CBE Non-executive Chairman Alastair Lyons is Non-executive Chairman of the Admiral Group, the FTSE-100 direct motor insurer, a role he has held since 2000, and of Serco, the FTSE-100 international services business. He is also Deputy Chairman of Bovis, the national housebuilder, and SID of Phoenix, the closed life-fund consolidator. In his previous career Alastair s roles included Chief Executive of the National & Provincial Building Society, Chief Executive of NPI and Director of Strategic Projects at Natwest. A chartered accountant, Alastair was a Non-executive Director of successively the Department for Work & Pensions and the Department for Transport. He was awarded the CBE in 2001 for his services to social security. 02. Peter Cullum, CBE Founder & Non-executive Deputy Chairman Peter began his insurance career in 1969 with the Royal Insurance Group and progressed to sales and marketing positions within Commercial Union and ITT London and Edinburgh where he became Marketing Director in In 1991, Peter joined Economic Insurance and led their return to profitability in In December 1993, Peter led the management buyout of the Economic Insurance that was sold in 1996 to Hiscox plc. He joined Hiscox as Group Marketing Director, a role he held until he left in 1997 to create Towergate Underwriting Group. In 2005, Peter won the Ernst & Young UK Entrepreneur of the Year award. In December 2010, Peter was awarded the CBE for his contribution to business, entrepreneurship and charitable causes. 03. Mark Hodges Group Chief Executive Officer Mark Hodges was appointed Chief Executive of Towergate Insurance in September Prior to this Mark was Chief Executive at Aviva UK which comprises the Life and Pensions and General Insurance businesses from January He was appointed to the board of Aviva plc as an Executive Director in June 2008 and was also a member of the Aviva group executive committee. Previously Mark was Chief Executive of Aviva UK Life, formerly known as Norwich Union Life, and held this role since April Prior to that he held the position of Managing Director of Aviva UK Insurance from 2005 to 2006 and Finance Director of Aviva UK Insurance from 1997 to Mark is a professionally qualified accountant (FCCA) and has an MBA from Cranfield Business School. 04. Scott Egan Group Chief Financial Officer Scott Egan was appointed Group Chief Financial Officer in April Prior to this, Scott was Group CFO of Brit Insurance Holdings and a main board member. Previously Scott was Group Controller of Zurich Financial Services based in Switzerland and prior to that CFO of their UK business. Scott has also held a number of senior positions at Aviva / Norwich Union including Strategy and Business Development Director Aviva Europe, Director of Partnerships and a number of senior finance roles within the General Insurance business. Scott is a qualified accountant (ACMA) and holds a MBA from Cranfield Business School. 05. Humphrey Battcock Non-executive Director Humphrey, at Advent International, is Co-head of Europe and has 27 years of private equity experience. Prior to joining Advent he worked for Coopers and Lybrand, in London, where he qualified as a Chartered Accountant. 06. Andy Homer Non-executive Director Andy was appointed Chief Executive Officer of Towergate Insurance in He joined Towergate in 2002 as Chief Executive Officer of the Folgate Partnership. Andy has worked in the insurance business since His career includes appointments as General Manager of Commercial Union UK (now part of Norwich Union) and CEO of Axa Insurance UK. Between 1998 and 2001 he was Chairman of the Motor Insurance Bureau and was President of the Chartered Insurance Institute in 2002/3. In January 2012 Andy was appointed Chairman of British Insurance Brokers Association. 07. Philip Moore Non-executive Director Philip has over 30 years industry experience. He is Group Finance Director of LV= having joined from Pension Corporation where he was Group Finance Partner and Chief Risk Officer. Prior to this he was Group Finance Director and latterly Group Chief Executive at Friends Provident, where he was a Non-executive Director of F&C Asset Management. He has previously held roles at AMP, NPI and PricewaterhouseCoopers both in London and Hong Kong. 08. Nick Rose Non-executive Director Nick joined Advent in 2005 from Bain and Company where he worked in their private equity practice on both pre and post acquisition work. Nick s sector focus at Advent is on business and financial services, with emphasis on speciality finance, insurance, asset management and outsourcing companies. 09. James Strachan Non-executive Director and Chairman of the Group Risk Committee James Strachan is a Non-Executive Director of JPMorgan Asian Investment Trust plc, Welsh Water Limited and Sarasin and Partners LLP. He is also Senior Visiting Fellow in risk and regulation at LSE, and having been Chairman, is now Vice President of the charity, RNID. Previous roles include Chairman of the Audit Commission, a Member of the Court of Directors of the Bank of England and Non- Executive Director of the Financial Services Authority, Legal and General plc, Care UK plc, Ofgem, Social Finance and the DTI Business and Energy Boards. He started his career as a commercial banker at Chase Manhattan and then became an investment banker at Merrill Lynch, where he was Managing Director and a Board member of Merrill Lynch International. 10. Truett Tate Non-executive Director Having recently retired from his position as Lloyds Banking Group s Executive Director of Lloyds Wholesale Banking, in February, 2013, Truett assumed the position of CEO of North America and Head of the Global Diversified Industries Group for ANZ Banking Group. Previously at Lloyds, he was Chairman Corporate Social Responsibility and Customer Relationships and Chairman of Lloyds Development Capital, amongst his other roles. Truett started his career with Citibank and took on a broad variety of Management roles around the globe, retiring in 1998 to pursue a variety of entrepreneurial investments. He founded and ran a number of enterprises in various countries and is active in multiple charitable causes and foundations. He is currently Chairman of Arora Holdings and VT-Advisory, as well as serving as a Director on Virgin Group s Advisory Board. 11. Dr Teresa Robson-Capps Non-executive Director Teresa has spent over 20 years in a variety of senior executive operational board positions in the Retail, Mobile Telecoms, Insurance and Banking industries. Teresa was Deputy Head of HSBC Direct Bank from June 2009 to September During this time she developed and implemented a substantial change programme, integrating sales and service with increased conversion rates whilst improving both customer and employee satisfaction. Prior to this, Teresa was Head of Contact Centres for HSBC, a role covering 11 million UK customers from 13 virtual sites. Teresa was an Associate Partner at Accenture from 2003 to 2006 and in the three years prior to that, was MD of The Customer Division at Reality, a Division of GUS PLC. 12

14 TOWERGATE INSURANCE EXECUTIVE COMMITTEE Mark Hodges Group Chief Executive Officer Mark Hodges was appointed Chief Executive of Towergate Insurance in September Prior to this Mark was Chief Executive at Aviva UK which comprises the Life and Pensions and General Insurance businesses from January He was appointed to the board of Aviva plc as an Executive Director in June 2008 and was also a member of the Aviva group executive committee. Previously Mark was Chief Executive of Aviva UK Life, formerly known as Norwich Union Life, and held this role since April Prior to this he held the position of Managing Director of Aviva UK Insurance from 2005 to 2006 and Finance Director of Aviva UK Insurance from 1997 to Lucinda Charles-Jones Group HR Director Lucinda was appointed Group HR Director in October 2011, joining from AXA where she held the role of Interim Group HR Director for AXA UK/Ireland Group. She has many years of senior management board experience including HR Director roles at Barclays UK Retail Bank, RAC Consumer and Lex Vehicle Leasing Ltd, and more recently spent three years as Group HR Director at Hays Plc. 03. Gary Duggan Chief Executive Officer - Network Division Gary joined Towergate Insurance in February 2013 from Barclays where he held various positions over a six year period, the most recent being Chief Retail Officer, New Markets. Prior to that, he held several Managing Director roles, including MD Insurance and Investments. Gary has over 25 years experience in Retail banking which has included running large scale businesses requiring significant transformation. Prior to Barclays, Gary was Marketing and Cross- Sales Director Consumer Lending, at GE Money and Head of Personal Loans for HBOS. 04. Scott Egan Group Chief Financial Officer Scott Egan was appointed Group Chief Financial Officer in April Prior to this, Scott was Group CFO of Brit Insurance Holdings and a main board member. Previously Scott was Group Controller of Zurich Financial Services based in Switzerland and prior to that CFO of their UK business. Scott has also held a number of senior positions at Aviva / Norwich Union including Strategy and Business Development Director Aviva Europe, Director of Partnerships and a number of senior finance roles within the General Insurance business. Scott is a qualified accountant (ACMA) and holds a MBA from Cranfield Business School. 05. Lindsay Forster Group Marketing Director Lindsay will join Towergate Insurance in May 2013 from Lloyds Banking Group where she held various positions over a nine year period, the most recent being Products and Marketing Director for the Commercial Bank. Prior to that, she was GI Products and Marketing Director. Lindsay has held a number of senior marketing positions within Norwich Union, RAC, Mazda Motor Europe and Lotus Cars. Throughout her career, which spans over 25 years, Lindsay has gained strong, extensive experience in senior level marketing. 06. Keith Jackson Group Risk Officer Keith joined Towergate Insurance in October 2012 from global healthcare provider Bupa where he held the role of Group Chief Risk Officer from 2009 to In the previous 25 years, Keith has held a variety of senior risk and finance positions in a range of firms including Aviva and Yorkshire Electricity. Keith is a qualified accountant (FCMA) and holds an MBA from Strathclyde Graduate Business School. 07. Tim Johnson Chief Executive Officer - Paymentshield Tim began his insurance career with Royal Insurance, before moving into the broking arena with Aon in Following periods in the Corporate and Sports and Events divisions he took up the post of CEO of Aon s Affinity and SME business. He joined Towergate as CEO in 2003, and was involved in a number of acquisitions which saw the business grow rapidly. On the merger of Towergate and Folgate in 2005, Johnson formulated a plan for a new business, Cullum Capital Ventures, with Peter Cullum. In June 2009 he took up the role of CEO of Paymentshield, one of Towergate s most significant acquisitions to date and the dominant player in the mortgage broker general insurance market place. 08. Jill Lucas Chief Information Officer Jill Lucas was appointed Group Chief Information Officer in November 2012, joining from Belron International where she held the post of Chief Information Officer for the group. Prior to that, Jill held a number of senior IT leadership roles at Sainsburys and Barclays, and more recently was one of four business-facing directors in the Information, Services & Technology function at Reuters (now Thomson Reuters). 09. Clive Nathan Chief Executive Officer - Underwriting Clive Nathan was appointed as Chief Executive Officer Underwriting in Clive began his career in 1987 as a graduate entrant with Commercial Union. His roles with CU included Marketing Executive, Development Manager and National Broker Manager. Clive joined AXA in 1999 as National Broker Director and moved to Regional Director. He joined Towergate in 2003 as Regional Managing Director and was promoted to Divisional Managing Director with responsibility for both Retail and Underwriting businesses in Clive is a member of the CII Underwriting Faculty and a mentor to the CII New Generation Claims Group. 10. Michael Rea Chief Executive Officer - Retail Following a career with Price Waterhouse, Michael has held a number of senior corporate finance and finance director roles in the insurance industry, notably at Prudential, Churchill and NIG. He moved into general management with NIG in 2005 as Head of UK Operations, and joined the Towergate group in 2008 as Chief Operating Officer of the Underwriting Division. Michael took over as CEO of CCV in September In October 2011, Michael was appointed CEO of Towergate Retail Division. 13

15 BUSINESS REVIEW Group refinancing In 2011 the Group went through a refinancing and reorganisation which brought the Cullum Capital Ventures (CCV) group into the Towergate group but left two separate debt facilities, one for Towergate and one for CCV. During 2012 we were able to simplify those arrangements and the CCV facilities were subsumed into the Towergate Bond and Bank finance structure to create one consolidated group debt structure. The transaction completed in June As part of this refinancing, the existing CCV debt was repaid and replaced with a new Lloyds facility of 28m and the issue of additional secured bonds to the gross value of 19m. Basis of financial reporting Towergate PartnershipCo was incorporated on the 23 December 2010 as a private company. The first period of financial reporting covered the period from 23 December 2010 to 31 December 2011 and is given as a comparative in these financial statements. Throughout the period from incorporation to 11 February 2011 Towergate PartnershipCo Limited was a shell company with no material revenues and assets. With effect from 11 February 2011, under a scheme of arrangement involving a share exchange with the members of Towergate Partnership Limited, the company became the new holding company of the Group. Towergate PartnershipCo Limited and its subsidiaries (together the Group ) operates an insurance brokerage business in the UK. In order to appropriately reflect the substance of the transaction outlined above, the insertion of Towergate PartnershipCo Limited as the new parent company of the Group has been accounted for as a capital reorganisation. On this basis, the results, Statement of Financial Position and cash flows of Towergate PartnershipCo Limited and Towergate Partnership Limited are combined with effect from 1 January The Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and Statement of Cash Flows comparatives are presented on a combined basis and adjustments are made to achieve consistency of accounting policies. The difference between the nominal value of the shares issued plus the fair value of any other consideration given, and the nominal value of the shares received in exchange is recognised as a reorganisation reserve. The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRIC interpretations and the Companies Act 2006 applicable to Companies reporting under IFRSs. Financial performance 2012 continued to be a challenging market for insurance intermediaries and in that context we see the Group s overall performance as encouraging. The statutory basis on which the accounts are produced reflects the results of the acquired businesses only from the date of acquisition but does not include them in comparative figures. For ease of comparison between years we have also set out below our performance on a Pro forma basis which assumes that CCV and Countrywide were owned from the beginning of 2011, thereby creating a real comparative. Powerplace was sold by the Group on 31 December The Pro forma information presented in the table below does not include results for the Powerplace business for either the current or previous period and also reflects the internal restructuring of certain businesses between the relevant divisions. On the statutory basis, income was up 5% to 441m with Operating Earnings up 5% to 159m. On a Pro forma basis the Group s income rose by 3% to 439m with Operating Earnings up 4% at 161m. The Group Operating Earnings margin remains strong at 36.9% on a Pro forma basis and 36.2% on a statutory basis. Statutory Basis Pro forma Basis m m m m Income Commission and fees Investment income and share of associates Administrative expenses Management and staff costs (1) Premises and other costs Operating Earnings (2) (1) Management and staff costs includes salaries and associated expenses plus staff related costs included within other operating costs. (2) Earnings before interest, tax, depreciation, amortisation, executive bonus costs and other non-operating costs. 14

16 BUSINESS REVIEW Statutory Basis Pro forma Basis Commission and fees m m m m Retail Underwriting Paymentshield Networks Other Pro forma income growth of 3% has been driven by the Underwriting and Paymentshield divisions. The Underwriting division has seen income growth of 13%. During the year we successfully renewed 250m of capacity on five year deals, with diversified and supportive carriers, at competitive terms. New business was marginally down against 2011 which saw record new business growth. A strong result for Paymentshield, with income growing 7% in a challenging UK mortgage market. Paymentshield continues to develop its distribution channels. A panel proposition was launched in June and new single tie deals have been signed with the Openwork and Sesame networks, which are expected to increase sales throughout Paymentshield was restructured with Berkeley Alexander and British Insurance, which both compliment the Paymentshield proposition, being transferred in and with MARAS being transferred out to Towergate Retail. In a highly competitive market and difficult economic conditions, Retail income was broadly in line with prior year, with growth in the CCV & Sales & Service businesses. In 2012 we successfully developed a number of significant affinity relationships, in particular deals with RAC and Cancer Research UK. We have also been focussed on capturing our retail teams awareness of the needs of their customers to improve the propositions offered by our underwriting focus both to brokers within Towergate and externally. Network continues to welcome new broker members to the division with new members up 10% on the prior year at 44. There were 9 upgrades from Associate proposition to Member and 15 upgrades from the Countrywide product club. The fall in income represents a change in strategy by some of our partner insurers. Statutory Basis Pro forma Basis Operating Earnings are analysed by division as follows: m m m m Retail Underwriting Paymentshield Networks Other (29.1) (21.1) (27.0) (18.6) Operating Earnings The key indicators against which we measure our performance are set out in the table below. Commission and fees as a percentage of Gross Written Premium show a small improvement year on year. Towergate continues to enjoy strong support from its insurer partners. Staff costs as a percentage of net commission and fees moved up slightly year on year as a result both of reduced income in our regional broking business and the Group continuing to invest in people to support future income growth. Our Operating Earnings/income margin, is up year on year, and remains strong. Statutory Basis Pro forma Basis Net commission and fees / GWP (1) 21.4% 20.9% 22.0% 21.5% Staff costs / net commission and fees 51.1% 50.7% 51.0% 50.4% Operating Earnings / income 36.0% 35.9% 36.7% 36.3% Operating Earnings / GWP (1) 8.1% 7.7% 8.5% 8.1% (1) Ratios to GWP are stated excluding network business. 15

17 BUSINESS REVIEW Reconciliation of Operating Earnings to Statutory result In common with most other privately owned leveraged companies, we focus on Operating Earnings as the key measure of profitability as it allows straight-forward, consistent comparison between all businesses regardless of capital structure. Towergate has chosen to optimise its capital structure by funding itself predominantly via debt rather than equity. The cost of that debt appears as an interest charge, whereas a business that has chosen to finance itself via equity bears the cost of that equity in the form of dividends. The following table reconciles the Operating Earnings result to the loss on ordinary activities before tax as set out in the financial statements. m m Operating Earnings Depreciation and amortisation Other non-operating costs (22.0) (19.9) (30.0) (38.6) Interest payable and similar charges (cash) (98.4) (93.2) Interest payable and similar charges (non-cash) (14.6) (27.0) (165.0) (178.7) Loss on ordinary activities before tax (6.1) (27.0) Notes: Other non-operating costs comprise (a) bank and other fees connected with refinancing transactions (b) group restructure costs and business investment costs (c) charge for provisions required by IFRS2 relating to long term incentive plans (d) exceptional executive bonus costs (e) loss on disposal of subsidiaries and associates (f) movement in deferred consideration and minority interest (g) movement in the value of derivatives. The non-cash interest of 14.6m relates to loans invested at the time of the transaction of February Financial Strength For all our stakeholders, including customers (direct and brokers), insurers, banks, the FCA (Financial Conduct Authority), our employees and shareholders, the financial strength of Towergate is of particular importance. The new capital structure put in place in February 2011 gave Towergate PartnershipCo Limited a stable Statement of Financial Position funded by a combination of debt and equity. Total shareholders funds of the parent company as at 31 December 2012 were 334 million. Our principal FCA regulated entity, Towergate Underwriting Group Limited (TUGL), has seen its net assets grow to 508 million during 2012 from 495m in Cash Flow The Group s operating cash flow remains positive. In 2012 our Operating Earnings of million were over 1.6 times our interest costs, excluding the non-cash element. This substantial cash flow is reinvested in the business both by way of acquisitions and developing our systems for the future. Debt Facilities During 2012 the Group refinanced the existing loan facilities held by the CCV group of companies, drawing on an incremental facility and issuing additional public bonds. At the Statement of Financial Position date, the Group had undrawn acquisition facilities of 36.7m and undrawn revolving credit facilities of 10 million. Full details of the Group s debt facilities are set out in note 20 on page

18 BUSINESS REVIEW Risk management Risk Management is at the heart of what we do and is viewed as an integral part of maintaining financial stability for our customers and other stakeholders. Further discussion of the Group s risk management approach is given in Note 3. Financial Risk and Capital Management. Risk management responsibilities, policies and procedures The Group s Enterprise Risk Management Framework (ERMF) defines the approach for identifying and managing risk within the business. Support and guidelines is provided by the independent risk management function, with formal reporting on a quarterly basis to the group executive committee and group risk committee. RiSk appetite Risk appetite is an expression of the amount and type of risk that the Group is willing to accept in order to achieve its strategic objectives. The Group s risk appetite influences the risk management strategy which in turn influences the business culture and operating decisions. The risk appetite statement is subject to review and approval by the Group Risk Committee and Board on an annual basis. Risk factors Towergate has identified four key risk areas: Risk type Strategic and Commercial Risk Risk of changes to the competitive and / or economic environment. Financial Risk Risk of adverse impact on business value or earning capacity as well as risk of inadequate cash flow to meet financial obligations. Operational Risk Risk of loss arising from inadequate or failed internal processes, from personnel and / or from external events. Risk Mitigation Robust strategy and planning process. Regular monitoring of economic and competitive environment. Diversification of product lines and channels. Proactive management of business plan. Regular monitoring of cash flows against risk appetite. Close relationship with a number of debt providers. Enterprise Risk Management Framework owned by the Group Risk Officer. Business continuity planning. Regulatory and Legal Risk Risk of regulatory sanctions, material financial loss or loss to reputation suffered as a result of non compliance with laws, regulations and applicable administrative provisions. Proactive relationship with the FCA. Dedicated compliance function. Compliance monitoring programme in place. 17

19 BUSINESS REVIEW Risks arising from leverage The Group has long-term debt as a core element of its capital structure. The Group manages the risk relating to the availability of debt by maintaining a close relationship with a number of different debt providers. The Group refinanced all of its loan facilities in February 2011 as a result of which the earliest debt maturities have been extended to 2017 and loan amortisation has reduced. The Group is exposed to interest rate risk arising from its banking facilities which it monitors closely and manages through the use of derivatives. It is also exposed to covenant risks from its borrowing activities which it manages through financial forecasts. As almost all the Group s trading is transacted in sterling the Group has negligible foreign exchange exposure. Environment and community Towergate is committed to being environmentally responsible in all areas of its trading. With over 100 offices in the UK this requires a flexible approach. Examples of our numerous environmental initiatives include: the recycling of paper, glass, cans, plastics and electrical equipment where possible; double-sided printing and copying equipment provided across all areas of the business; buying recycled products; reduced energy consumption through investment in energy efficient equipment and lighting and ensuring it is switched off when not in use; where Towergate can influence the design of new buildings, encouraging landlords to build to the highest practical environmental standards; reduction in travelling through use of video conferencing technologies; the introduction of green travel policies such as car sharing and walk/cycle to work initiatives. Towergate continues to support community programmes that are appropriate to the business and that contribute to society. The Group s annual charity contributions amounted to 224,050 in 2012 (2011: 245,545). In total, Towergate funded and promoted activity that raised 1.5m (2011: 1.5m) for charitable causes. Of this, Towergate employees raised 406,000 (2011: 780,600) through fund-raising in their local communities. The majority of these funds were channelled through the Towergate Charitable Foundation, which is a registered charity. The Foundation supports four principal charity partners: Great Ormond Street Hospital; NSPCC / ChildLine; Help the Hospices; and Cancer Research. In addition, we support selected armed forces charities which represent the communities connected to our military insurance business, and other charities related to the activities of our Foundation partners local hospices, for example. Our policy, wherever possible, is to identify specific uses of funds raised so that those contributing can be sure that they are put to good use. 18

20 Directors report The directors have pleasure in presenting their Annual Report and the audited financial statements for the year ended 31 December Activities Towergate PartnershipCo Limited is a holding company which operates via its subsidiaries to distribute insurance products. The principal activity of the Group is insurance broking, underwriting, mortgage broking solutions and the provision of insurance network services. The Chairman s statement, the CEO statement and Business Review set out on pages 2 to 18 report on the activities during the period, post Statement of Financial Position events and likely future developments. The information in these reports which is required to fulfil the requirements of the Business Review is incorporated in this Directors Report by reference. Date of incorporation The company was incorporated on 23 December Share Capital and Dividends The issued share capital of the Company, together with details of shares issued during the period is shown in notes 17 and 18 to the Consolidated Financial Statements. The directors have proposed a dividend of nil to equity shareholders (2011: nil). On 11 February 2011 a dividend of 275,720,936 was paid to the preference shareholders of Towergate Partnership Limited on redemption of the preference shares. No such dividend was paid in 2012 to preference shareholders. Directors The directors who held office during the period were: MS Hodges IWJ Patrick (resigned 31 March 2012) PG Cullum (non-executive) AC Homer (non-executive) N Rose (non-executive) A Lyons (non-executive) HW Battcock (non executive) PW Moore (non-executive) J Strachan (non-executive) T Tate (non-executive) S Egan (appointed 19 April 2012) Dr T Robson Capps (appointed 7 July 2012) All directors benefit from qualifying third party indemnity provisions in place during the financial period and at the date of this report. Employees The Group actively encourages all employees to become involved in Group affairs and is also keen to encourage two way communication on relevant business issues. This is achieved through regular employee meetings and presentations by senior management and is supported by a Group wide communication plan. Employees are key to the Group s success, so an appropriate remuneration package is offered which rewards an individual s performance and contribution to the organisation. The Group is also keen to encourage individuals personal development to ensure that they have the skills required to undertake their role. The Group s policy is to recruit disabled workers for those vacancies that they have the appropriate skills and technical ability to perform. Once employed, a career plan is developed to ensure that suitable opportunities exist for each disabled person. Employees who become disabled during their working life will be retrained if necessary and wherever possible will be given help with any necessary rehabilitation and training. The Group is prepared to modify procedures or equipment, wherever practicable, so that full use can be made of an individual s abilities. Creditor policies It is the Group s policy that payments to suppliers are made in accordance with those terms and conditions agreed between the company and its suppliers, provided that all trading terms and conditions have been complied with. Political and charitable contributions The Group made no political contributions during the period. Donations to UK charities amounted to 224,050 (2011: 245,545). In addition, Towergate funded and promoted activity that raised 1.5m for charitable causes (2011: 1.473m). 19

21 Directors report Going concern The financial performance of the Group, its cash flows and its borrowing facilities are described in the Business Review and in the notes to these financial statements. The Risk Management policies and procedures and a description of the Financial Risk and Capital Management are also set out in the Business Review and Note 3 to the financial statements. In the current year the Group has made a profit after tax after adjusting for the one off items of Group reorganisation costs and loss on disposal of businesses and investments. As can be seen from the cashflow statement the Group has positive operational cashflows. The Group has banking covenants as part of the debt structure and these are a key focus for the directors. The directors have considered the business plans and key factors that could have an impact on trading and whether an adverse change in these could affect our ability to meet covenants. This includes a potential deterioration in new business volumes, retention rates and expense management. We have considered reasonable changes in these areas which show the Group will be within the level of its banking covenants. Feasible management actions have been identified such that in the event that economic conditions become more severe than considered reasonably possible the continuation of the business is not impaired. The directors have no reason to believe that a material uncertainty exists that may cast significant doubt on the ability of the Group to continue as a going concern or its ability to continue to meet covenants. The Directors have also considered the repayment profile of the Group s debt facilities noting that the majority of the Group s facilities have a maturity over 5 years. On the basis of their assessment of the financial position of the Group, the directors believe that the Group will be able to continue in operation for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. Disclosure of information to auditors The directors who held office at the date of approval of this directors report confirm that, so far as they are each aware, there is no relevant audit information of which the Company s auditors are unaware; and each director has taken all the steps that they ought to have taken as a directors to make themselves aware of any relevant audit information and to establish that the company s auditors are aware of that information. Auditors Pursuant to Section 487 of the Companies Act 2006, the auditors will be deemed to be reappointed and KPMG Audit Plc will therefore continue in office. By order of the board. M Hodges Director 19 April 2013 Statement of directors responsibilities in respect of the directors report and the financial statements The directors are responsible for preparing the Directors Report and the group and parent company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they have elected to prepare the group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 20

22 Independent auditor s report to the members of Towergate PartnershipCo Limited We have audited the financial statements of Towergate PartnershipCo Limited for the year ended 31 December 2012 set out on pages 22 to 63. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). This report is made solely to the company s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act Our audit work has been undertaken so that we might state to the company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors Responsibilities Statement set out on page 20, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council s website at Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the group s and of the parent company s affairs as at 31 December 2012 and of the group s loss for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice; the financial statements have been prepared in accordance with the requirements of the Companies Act Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Rees Aronson (Senior Statutory Auditor) for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants 15 Canada Square London E14 5GL 19 April

23 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Notes Fees and commissions 5 439, ,804 Investment income Salaries and associated expenses 9 (197,590) (175,810) Other operating costs (113,558) (117,395) Depreciation, amortisation and impairment charges 6 (21,991) (19,890) Operating profit 106, ,440 Analysed as: Operating profit before exceptional items 135, ,121 (Loss)/gain on disposal of businesses and investments 6,29 (11,637) 319 Group reorganisational costs 6 (17,107) - Operating profit 106, ,440 Finance costs - net 8 (112,165) (134,820) Share of results of associates Impairment of associates 14 (1,023) - (Loss) before taxation (6,107) (27,016) Income tax charge 11 1,360 3,561 (Loss) for the year (4,747) (23,455) Total comprehensive income for the period (4,747) (23,455) Attributable to: Owners of the parent (4,905) (23,455) Non-controlling interests (4,747) (23,455) The notes on pages 26 to 61 form an integral part of these consolidated financial statements. 22

24 NOTES CONSOLIDATED TO THE FINANCIAL STATEMENT STATEMENTS OF FINANCIAL POSITION NET ASSETS At 31 December At 31 December Notes Non-current assets Intangible assets 12 1,081,307 1,054,111 Property, plant and equipment 13 14,513 16,309 Investments in associates 14 2,928 7,630 Available-for-sale financial assets Deferred tax assets 21 14,246 14,594 1,113,127 1,092,764 Current assets Trade and other receivables 17 85,243 75,629 Cash and cash equivalents , ,089 Current tax asset , ,718 Current liabilities Borrowings 20 (18,851) (21,191) Trade and other payables 19 (233,438) (245,122) Derivative financial instruments 16 - (2,073) Current tax liabilities 21 - (11,381) Provisions for other liabilities and charges 22 (1,034) (1,001) (253,323) (280,768) Net current assets / (liabilities) 41,052 30,950 Non-current liabilities Borrowings 20 (1,056,151) (1,009,047) Trade and other payables 19 (18,861) (24,164) Derivative financial instruments 16 (34,020) (41,486) Provisions for other liabilities and charges 22 (7,751) (6,491) (1,116,783) (1,081,188) 37,396 42,526 TOTAL EQUITY Capital and reserves attributable to the Company s equity holders Share capital Share premium , ,638 Retained earnings 25 (429,344) (424,344) Capital reorganisation reserve , ,043 Capital redemption reserve , ,000 Shareholders equity 37,083 42,371 Non controlling interest ,396 42,526 The notes on pages 26 to 61 form an integral part of these consolidated financial statements. Approved by the Board on 17 April 2013 and signed on its behalf by: M Hodges 23

25 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Capital Capital Non- Share Share reorganisation redemption Retained Shareholders controlling Total capital premium reserve reserve earnings equity interests equity Balance at 1 January , , ,000 (424,344) 42, ,526 Loss for the year (4,747) (4,747) - (4,747) Distribution to non-controlling interest (158) (158) Discount on issue - (288) (288) - (288) Dividends paid (95) (95) - (95) Balance at 31 December , , ,000 (429,344) 37, ,396 Balance at 1 January , ,043-16, ,472 (35) 268,437 Loss for the year (23,455) (23,455) - (23,455) Distribution to controlling shareholders (68,014) (68,014) - (68,014) Proceeds from shares issued , , ,662 Dividends paid (249,284) (249,284) - (249,284) Redemption (110,010) ,000 (100,000) (110,010) - (110,010) Dissolution of company Acquisition of non-controlling interests Balance at 31 December , , ,000 (424,344) 42, ,526 The notes on pages 26 to 61 form an integral part of these consolidated financial statements. During the year ended 31 December 2012, a subsidiary company, Oyster Property Insurance Specialist Limited paid a dividend out of distributable reserves of 94,623. Dividends per share was On 11 February 2011 a dividend of 249,284,060 was paid to the preference shareholders of Towergate Partnership Limited on the redemption of preference shares. The dividend per share for holders of the 20% cumulative preference shares, subordinated junior preferred ordinary shares and junior preferred ordinary A, B and C shares was 0.76 per share, 0.51 per share and per share respectively. 24

26 NOTES CONSOLIDATED TO THE FINANCIAL STATEMENT STATEMENTS OF CASH FLOWS Notes Cash flows from operating activities Cash generated from operations , ,067 Interest paid (90,994) (89,415) Interest received 1,605 1,789 Taxation paid (13,284) (7,654) (Decrease) / Increase in net insurance broking creditors (704) 19,199 Net cash generated from operating activities 6,597 40,986 Cash flows from investing activities Acquisition of businesses, net of cash acquired (18,120) (17,416) Purchase of property, plant and equipment (5,036) (4,951) Purchase of intangible fixed assets (17,150) (20,126) Disposal of business Net cash disposed of with subsidiaries (3,933) - Net cash used in investing activities (44,026) (42,493) Cash flows from financing activities Proceeds from issuance of ordinary shares - 110,001 Redemption of preference shares - (100,010) Loans granted from related parties 6,903 95,734 Loan repayments made to related parties (5,734) (11,646) Repayment of borrowings (65,104) (581,153) Proceeds from borrowings 81, ,965 Transaction costs (3,796) (39,478) Net settled deferred consideration (4,048) (7,936) Capital element of finance lease rental payments (69) (283) Dividends paid to holders of redeemable preference shares (95) (275,606) Net cash generated from financing activities 9,615 96,588 Net (decrease) / increase in cash and cash equivalents (27,814) 95,081 Cash and cash equivalents at beginning of period 236, ,008 Cash and cash equivalents at end of period 208, ,089 The notes on pages 26 to 61 form an integral part of these consolidated financial statements. 25

27 1. General information Towergate PartnershipCo Limited ( the company ) was incorporated on the 23 December 2010 as a private company limited by shares with registered number The company is incorporated and domiciled in the UK. The address of its registered office is Towergate House, Eclipse Park Sittingbourne Road, Maidstone, ME14 3EN. Throughout the period from incorporation to 11 February 2011 Towergate PartnershipCo Limited was a shell company with no material revenues and assets. With effect from 11 February 2011, under a scheme of arrangement involving a share exchange with the members of Towergate Partnership Limited, the company became the new holding company of the Group. Towergate PartnershipCo Limited and its subsidiaries (together the Group ) operates an insurance brokerage business in the UK. Capital reorganisation In order to appropriately reflect the substance of the transaction outlined above, the insertion of Towergate PartnershipCo Limited as the new parent company of the Group has been accounted for as a capital reorganisation. On this basis, the results, Statement of Financial Position and Statement of Cash Flows of Towergate PartnershipCo Limited and Towergate Partnership Limited are combined with effect from 1 January The Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and Statement of Cash Flows comparatives are presented on a combined basis and adjustments are made to achieve consistency of accounting policies. The difference between the nominal value of the shares issued plus the fair value of any other consideration given, and the nominal value of the shares received in exchange is recognised as a reorganisation reserve. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRIC interpretations and the Companies Act 2006 applicable to Companies reporting under IFRSs. The accounts for the year ended 31 December 2011 have been restated as the first set of financial statements prepared in accordance with IFRS and are available on the companies website. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets and derivative financial instruments. The directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. 2.2 Changes in accounting policy and disclosures new accounting standards (a) New and amended standards adopted by the Group There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on 1 January 2012 that would be expected to have a material impact on the group. (b) New standards and interpretations not yet mandatory and not yet adopted A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below: IFRS 13, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs. IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Group is yet to assess IFRS 9 s full impact and intends to adopt IFRS 9 no later than the accounting period beginning on or after 1 January 2015, subject to endorsement by the EU. The Group will also consider the impact of the remaining phases of IFRS 9 when completed by the Board. IFRS 10, Consolidated financial statements, builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. The Group is yet to assess IFRS 10 s full impact and intends to adopt IFRS 10 no later than the accounting period beginning on or after 1 January IFRS 12, Disclosures of interests in other entities, includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off Statement of Financial Position vehicles. The Group is yet to assess IFRS 12 s full impact and intends to adopt IFRS 12 no later than the accounting period beginning on or after 1 January There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. 26

28 2. Summary of significant accounting policies (continued) 2.3 Basis of consolidation The consolidated financial statements comprise the accounts of the Company and its subsidiary undertakings. As described above capital reorganisation accounting has been applied for the insertion of Towergate PartnershipCo Limited as the new parent company of the Group. The acquisition method of accounting has been adopted for all acquisitions in the period. The profits and losses of subsidiary undertakings are consolidated as from the effective date of acquisition or to the effective date of disposal. (a) Subsidiaries Subsidiaries are entities over which the Group has the power to govern the financial and operating policies so as to obtain economic benefits and generally accompany a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group holds put and call options ( potential voting rights ) over the minority interest holdings in certain of the subsidiaries. In assessing whether potential voting rights contribute to control (as defined by IAS 27), a review of the respective contractual arrangements is performed by the Group to assess the substance of the contractual arrangements. The Group accounts for these options as if they have already been exercised where risks and rewards are considered to have been transferred to the Group, and includes the anticipated settlement value as part of the cost of acquisition of the relevant subsidiary. Where risks and rewards are not considered to have transferred, the minority shares are recorded within non-controlling interests as part of equity. A liability is recognised in respect of the anticipated settlement in deferred consideration. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (b) Accounting for Business Combinations The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisitionby-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest s proportionate share of the acquiree s net assets. Acquisition-related costs are expensed as incurred. If a business combination is achieved in stages, the fair value of the acquirer s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability are recognised in accordance with IAS 39 in profit or loss. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity. Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interests over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units for the purpose of impairment testing. Business combinations with entities under common control are accounted for using predecessor accounting. Under predecessor accounting, no assets or liabilities are restated to their fair values and the Group incorporates predecessor carrying values. No new goodwill is recognised under predecessor accounting. (c) Transactions with non-controlling interests Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. (d) Disposal of subsidiaries When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. 27

29 2. Summary of significant accounting policies (continued) (e) Associates Associates are entities over which the group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor s share of the profit or loss of the investee after the date of acquisition. The Group s investment in associates includes goodwill identified on acquisition. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate. The Group s share of post-acquisition profit or loss of an associate is recognised in the income statement, and its share of post acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been modified where necessary to ensure consistency with the policies adopted by the Group. 2.4 Foreign currencies (a) Functional and presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). All Group entities are based in the UK and have Sterling as the functional currency. The consolidated financial statements are presented in Sterling ( presentation currency ). (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. 2.5 Investments Investments in the consolidated Statement of Financial Position represent the Group s investments in associates. 2.6 Intangible assets (a) Commission buy outs Commission buy outs exist either through business combinations when they are separable or are purchased separately and are capitalised on the basis of the costs incurred to acquire them. Amorisation is provided at a monthly rate of 3% on a reducing balance basis. (b) Customer relationships Customer relationship intangible assets exist through business combinations when the acquirer is able to benefit from selling future new business to existing relationships. These assets are amortised over their estimated useful lives of 10 years, which is estimated by reference to the history of the relationships and levels of attrition. (c) Trade names Trade names intangible assets exist through business combinations when they are separable or arise from contractual or other legal rights. These assets are amortised over their estimated useful lives of 5 years, which considers the terms of the restrictive covenants, the Group s track record of retaining brands for a period and experience of the insurance broker market. (d) Computer software Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire them and bring them to use. These costs are amortised over their estimated useful lives of 4 years. Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Software development expenditure is capitalised only where there is a clearly defined project, the expenditure is separately identifiable, the outcome of the project can be assessed with reasonable certainty, aggregate costs are expected to be more than covered by related revenues and adequate resources exist to enable the project to be completed. 2.7 Property, plant and equipment Assets are stated at their net book value (historical cost less accumulated depreciation). Depreciation is calculated to write off the cost of such assets on a straight line basis over their estimated useful lives. The principal rates of depreciation are as follows: Leasehold improvements - over the life of the lease. Furniture and office equipment - 20% per annum. Motor vehicles - 25% per annum. Fixtures and fittings - 15% per annum or over 6 years. Computer hardware - 25% per annum. 28

30 2. Summary of significant accounting policies (continued) 2.8 Impairment of assets Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). 2.9 Financial assets The Group classifies its financial assets as loans and receivables and available-for-sale investments. The classification depends upon the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (a) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the Statement of Financial Position date. The Group s loans and receivables comprise trade and other receivables and cash and cash equivalents in the Statement of Financial Position. Trade receivables Trade receivables are recognised initially at fair value and subsequently at amortised cost, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, dispute, default or delinquency in payments are considered indicators that the receivable is impaired. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at banks, other short-term highly liquid investments. Bank overdrafts are shown within borrowings in current liabilities on the Statement of Financial Position. (b) Available-for-sale financial assets Available-for-sale financial assets held by the Group can all be categorised as unlisted investments - these investments are held at fair value unless a fair value cannot be accurately determined in which case they are held at cost less any provision for impairment. Investments are initially recognised at fair value plus transaction costs. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership Insurance broking debtors and creditors Insurance brokers act as agents in placing the insurable risks of their clients with insurers and, as such, are not liable as principals for amounts arising from such transactions. In recognition of this relationship, debtors from insurance broking transactions are not included as an asset of the Group. Other than the receivable for fees and commissions earned on a transaction, no recognition of the insurance transaction occurs until the Group receives cash in respect of premiums or claims, at which time a corresponding liability is established in favour of the insurer or the client. In certain circumstances, the Group advances premiums, refunds or claims to insurance underwriters or clients prior to collection. These advances are reflected in the consolidated Statement of Financial Position as part of trade receivables Trade payables Trade payables are initially recognised at fair value and subsequently measured at amortised cost Borrowings Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the Statement of Financial Position date. Borrowings are recognised initially at fair value, net of transaction costs incurred. They are subsequently stated at amortised cost using the effective interest rate method Derivative financial instruments The Group only enters into derivative financial instruments, in particular interest rate swaps, in order to hedge underlying commercial exposures. Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Fair value changes will be recognised in the income statement. The Group does not apply hedge accounting Fair value estimation The fair value of financial instruments traded in active markets (such as available-for-sale) is based upon quoted market prices at the Statement of Financial Position date. The quoted market price used for financial assets held by the Group is the current bid price. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair values of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. 29

31 2. Summary of significant accounting policies (continued) 2.15 Taxation The charge for taxation is based on the result for the year at current rates of tax and takes into account deferred tax. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not recognised. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the Statement of Financial Position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the Group controls the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future Employee benefits (a) Pension costs The Group operates a number of defined contribution pension schemes. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The costs of the Group s defined contribution pension schemes are charged to the income statement in the period in which they fall due. (b) Share-based compensation Equity-settled The fair value of share entitlements granted is recognised as an employee expense with a corresponding increase in equity. The fair value of the share entitlements is measured at grant date and spread over the period during which the employees become unconditionally entitled to them. The fair value of the share entitlements granted is measured taking into account the terms and conditions upon which they were granted. The amount recognised as an expense is adjusted to reflect the actual number of share entitlements that vest. Transactions of the company-sponsored employee share ownership company and trust are treated as being those of the company and are therefore reflected in the group financial statements. In particular, the employee share ownership company and trust s purchases and sales of shares in the company are debited and credited directly to equity. Cash-settled The fair value at grant date of the amount payable to the employee is recognised as an expense with a corresponding increase in liabilities. The fair value is initially measured at grant date and spread over the period during which employees become unconditionally entitled to payment. The liability is revalued at each Statement of Financial Position date and settlement date with any changes to fair value being recognised in the profit and loss account. The fair value is measured based on prices achieved for the sale of the relevant company s shares in recent transactions Provisions for liabilities and charges A provision is recognised where there is a present obligation, whether legal or constructive, as a result of a past event for which it is probable that a transfer of economic benefits will be required to settle the obligation and a reasonable estimate can be made of the amount of the obligation. Where appropriate the Group discounts provisions to their present value. The unwinding of the provision discounting is included as an interest charge within finance costs in the income statement Fees and commissions/turnover Fees and commissions are derived from: (a) Insurance broking Turnover comprises net commission receivable at the later of policy inception date or when the policy placement has been completed and confirmed, during the period. To the extent that the Company is contractually obliged to provide services after this date, a suitable proportion of income is deferred and recognised over the life of the relevant contracts to ensure that revenue appropriately reflects the cost of fulfilment of these obligations. Credit referencing income is recognised immediately following the provision of the service. Profit commission is recognised when notified which is earlier of receipt or confirmation. (b) Other services Fees and other income receivable are recognised in the period which they relate and when they can be measured with reasonable certainty. 30

32 2. Summary of significant accounting policies (continued) 2.19 Exceptional items Exceptional items are separately identified to provide greater understanding of the Group s underlying performance. Items classified as exceptional items include: gains or losses arising from the sale of businesses and investments; closure costs for businesses; restructuring costs; post acquisition integration costs: and other credits and charges of non-recurring nature that require inclusion in order to provide additional insight into the underlying business performance. Items of a non-recurring and material nature are charged or credited to operating profit and are classified to the appropriate income statement headings. To assist in the analysis and understanding of the underlying trading position of the Group these items are summarised within the Operating Profit, note 6. Operating profit, if any, under the heading of exceptional items Leases Assets held under leasing agreements, which transfer substantially all the risks and rewards of ownership to the Group are included in property, plant and equipment. The capital elements of the related lease obligations are included in liabilities. The interest elements of the lease obligations are charged to the income statement over the period of the lease term. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight line basis over the period of the lease Dividend distribution Dividends proposed or declared after the Statement of Financial Position date are not recognised as a liability at the Statement of Financial Position date. Final dividends are recognised as a charge to equity once approved and interim dividends are charged once paid. 3. Financial Risk and Capital Management 3.1 Financial risk factors Risk Management is at the heart of what we do and is viewed as an integral part of maintaining operational and financial performance for the benefits of our customers and other stakeholders. During 2011 we introduced a new Enterprise Risk Management Framework (ERMF). Business management is primarily responsible for risk management while Divisional Boards and two Board committees - Group Risk and Audit - exercise oversight. The Enterprise Risk Management Framework aims to: (a) Establish clear functional responsibilities and accountabilities for the management of risk. (b) Set risk policies, delegated authorities and limits consistent with the risk appetite. (c) Ensure appropriate skills and resources are applied to the management of risk. While business management has primary responsibility for implementing ERMF, support for and challenge on the risk management activities, including the identification, measurement, monitoring, management and reporting of risk, are performed by an independent risk function. The design of the ERMF is also primarily the responsibility of the independent risk function. We regularly issue, review and update formal risk management policy statements in the light of changing market and economic conditions. These set out risk management and minimum control standards for the Group. Risk appetite is an expression of the amount and type of risk that the Group is willing to accept in order to achieve its strategic objectives. The Group s risk appetite influences the risk management strategy which in turn influences the business culture and operating decisions. The risk appetite statement is subject to review and approval by the Group Risk Committee and Board on an annual basis. Financial risk management is carried out by a central treasury department (Group treasury). Group treasury identifies, evaluates and hedges financial risks in close co-operation with the Group s operating units. Financial risk mitigation includes the regular monitoring of cash flows against risk appetite, a close relationship with a number of debt providers and interest rate risk managed through use of derivatives Market risk Interest rate risk The Group s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. During 2012 and 2011, the Group s borrowings were denominated in sterling. The Group entered into floating-to-fixed interest rate swaps as part of the interest rate risk management strategy where it has borrowed at floating rates. These present the greatest sensitivity to interest rate changes as most variable debt interest have a floor which currently means they behaves as fixed interest debt. 31

33 3. Financial Risk and Capital Management (continued) Our floating rate instruments have a LIBOR floor of 1.5%, with interest rates at present a 0.5% movement in rates will have no impact on the interest charge which is not breached by a 0.5% interest rate sensitivity stress. For derivatives which have been used to hedge interest rate risk, if interest rates had been 0.5% higher/lower with all other variables held constant, post-tax profit for the year would have been 2m ( m) lower/higher Other risks There are no material foreign exchange risks since the Group s transactions are primarily dominated in sterling. Further, the Group is neither exposed to significant equity securities price risk nor to commodity price risk. Additionally, as the Group is not exposed to any other price risks, like stock exchange prices or commodity prices, an increase or decrease of the relevant market prices within reasonable margins would not have an impact on the Group s profit or equity. Hence, the Group s exposure to other price risks is regarded as not material Credit risk The credit risk incurred by the Group is the risk that counterparties fail to meet their obligations arising from operating activities and from financial transactions. Credit risk arises from own cash, fiduciary funds and deposits, as well as credit exposures to customers, including outstanding receivables and committed transactions. Credit risk on customers and transactions is currently managed at a local business unit level. As at 31 December 2012, the Group was exposed to credit risk from trade receivables of 46.7m before provision for impairment (2011: 48.0m). Due to the nature of the customer portfolio, there is no significant concentration of credit risk. Further analysis of the ageing profile of trade receivables and the provision for impairment is disclosed in note 17. Trade and other receivables. The Group manages its own cash, fiduciary funds and deposits with investment grade banks. These balances are spread over a number of different banks and the current level of exposure is: At 31 December At 31 December Own funds 76,941 99,893 Fiduciary 131, , Liquidity risk Group finance monitors rolling forecasts of the Group s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration, for example, the Group s debt financing plans and covenant compliance. 32

34 3. Financial Risk and Capital Management (continued) The table below analyses the Group s non-derivative financial liabilities and net settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the Statement of Financial Position date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows and include the interest payable on borrowings. Between Between Less than 1 and 2 2 and 5 Over 5 1 Year Years Years Years 31 December 2012 Borrowings (excluding finance lease liabilities) (94,359) (107,730) (547,449) (1,066,428) Derivative financial instruments - net settlement (15,216) (15,216) (3,588) - Finance Lease Liabilities (226) (14) - - Trade and other payables (excluding non-financial liabilities) (178,788) (16,698) - - (288,589) (139,658) (551,037) (1,066,428) Between Between Less than 1 and 2 2 and 5 Over 5 1 Year Years Years Years 31 December 2011 Borrowings (excluding finance lease liabilities) (93,912) (114,234) (301,481) (1,247,179) Derivative financial instruments - net settlement (15,901) (13,829) (13,829) - Finance Lease Liabilities (108) (23) - - Trade and other payables (excluding non-financial liabilities) (186,251) (13,561) - - (296,172) (141,647) (315,310) (1,247,179) 3.2 Capital management The Group s objectives when managing capital are to safeguard the Group s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. Towergate is predominantly funded via debt rather than equity. The cost of that debt appears as an interest charge, whereas a business that has chosen to finance itself via equity bears the cost of that equity in the form of dividends. In common with its peers, the Group has long-term debt as a core element of its capital structure. The Group manages the risk with regards to the availability of debt by maintaining a close relationship with a number of different debt providers. The Group refinanced all of its loan facilities in February 2011 as a result of which the earliest debt maturities have been extended to The Group is subject to certain material financial covenants in relation to its debt financing which are monitored on an ongoing basis. These financial covenants are operating at a lower consolidated level for Towergate Holdings II Limited and are based on UK GAAP. The Group monitors the covenant positions through rolling forecasts of the Group profit and loss account, Statement of Financial Position and cash flow positions. UK insurance broking regulation requires a minimum level of capital to be maintained. The total regulatory capital to be held by the Group is not considered significant in the context of the total available capital. In all periods presented the Group complied with all imposed regulatory capital requirements. 3.3 Fair value estimation Below is an analysis of the financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: (a) Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. (b) Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). (c) Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). As of 31 December 2012 and 2011, the derivative financial instruments (i.e. interest rate swaps derivatives) are categorised within level 2 of the fair value hierarchy. The fair value of the derivative financial instruments is calculated as the present value of the estimated future cash flows. Trade and other payables classified at fair value through profit and loss (relating to deferred consideration and redemption liability on non-controlling interest put options) are categorised within level 3 of the fair value hierarchy. Other techniques, such as estimated discounted cash flows, are used to determine their fair value. 33

35 3. Financial Risk and Capital Management (continued) The table below summarises the Group s financial instruments by category: Loans and Available 31 December 2012 receivables for sale Total Assets per Statement of Financial Position 000 Available-for-sale financial assets Trade and other receivables, excluding pre-payments 65,982-65,982 Cash and cash equivalents 208, ,275 Total 274, ,390 Liabilities at Other financial fair value through liabilities at 31 December 2012 profit and loss amortised cost Total Liabilities per Statement of Financial Position 000 Borrowings (excluding finance lease liabilities) - (1,074,775) (1,074,775) Finance lease liabilities - (227) (227) Derivative financial instruments (34,020) - (34,020) Trade and other payables, excluding non-financial liabilities (30,634) (164,852) (195,486) Total (64,654) (1,239,854) (1,304,508) Loans and Available 31 December 2011 receivables for sale Total Assets per Statement of Financial Position 000 Available-for-sale financial assets Trade and other receivables, excluding pre-payments 59,722-59,722 Cash and cash equivalents 236, ,089 Total 295, ,931 Liabilities at Other financial fair value through liabilities at 31 December 2011 profit and loss amortised cost Total Liabilities per Statement of Financial Position 000 Borrowings (excluding finance lease liabilities) - (1,030,114) (1,030,114) Finance lease liabilities - (124) (124) Derivative financial instruments (43,558) - (43,558) Trade and other payables, excluding non-financial liabilities (31,302) (168,510) (199,812) Total (74,860) (1,198,748) (1,273,608) 34

36 4. Critical accounting estimates and judgements Estimates and judgements used in preparing the financial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant effect on the carrying amounts of assets and liabilities are discussed below. 4.1 Impairment of assets The Group tests annually whether goodwill and other assets that have indefinite useful lives suffered any impairment. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset or a cash-generating unit is determined based on value-in use calculations prepared on the basis of management s assumptions and estimates. This determination requires significant judgement. In making this judgement, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and near-term business outlook for the investment, including factors such as industry and sector performance, changes in regional economies and operational and financing cash flow. 4.2 Income taxes Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. 4.3 Errors and omissions liability During the ordinary course of business the Group can be subject to claims for errors and omissions made in connection with its broking activities. A Statement of Financial Position provision is established in respect of such claims when it is probable that the liability has been incurred and the amount of the liability can be reasonably estimated. The Group analyses its litigation exposures based on available information, including external legal consultation where appropriate, to assess its potential liability. The outcome of the currently pending and future proceedings cannot be predicted with certainty. Thus, an adverse decision in a current or future lawsuit could result in additional costs that are not covered, either wholly or partially, under insurance policies and are in excess of the presently established provisions. It is possible therefore that the financial position, results of operations or cash flows of the Group could be materially affected by the unfavourable outcome of litigation. 4.4 Estimated useful lives Assets, other than assets with indefinite useful lives, are carried at historical cost less amortisation or depreciation calculated to write off the cost of such assets over their estimated useful lives. Management determines the estimated useful lives and related amortisation or depreciation charges at acquisition. The estimated useful life is reviewed annually and the amortisation or depreciation charge is revised where useful lives are subsequently found to be different to those previously estimated. 5. Other business information The Group presents supplementary financial information in respect of its lines of business. These are based on the Group s management and internal reporting structures. This supplementary information is provided on a voluntary basis and is not prepared in accordance with IFRS 8 Operating Segments. The different lines of business in the Group are described as below: Retail offers insurance products and broking services, includes the Group s financial services businesses. Underwriting Agencies distributes insurance products to insurance brokers who act on behalf of insured customers, prices insurance coverage and issues insurance policies. Mortgage Broking Solutions provides mortgage related insurance products to third party mortgage brokers and other mortgage intermediaries. Networks provides independent brokers with insurer and business support services. Other central support function to the trading businesses and Powerplace, an electronic marketplace for commercial lines of insurance. The results, assets and liabilities include items directly attributable to a line of business as well as those that can be allocated on a reasonable basis. Information regarding geographical areas is not presented as all businesses are located in the United Kingdom and turnover consists of sales made in the United Kingdom. 35

37 5. Other business information (continued) The results of the above classes of businesses can be analysed as follows: Turnover Retail 256, ,653 Underwriting Agencies 87,185 76,890 Mortgage Broking Solutions 72,216 64,949 Networks 16,569 19,956 Other 6,273 7, , ,804 Operating Profit Retail 71,318 61,597 Underwriting Agencies 39,060 32,961 Mortgage Broking Solutions 51,819 43,045 Networks 9,627 12,367 Other (65,022) (42,530) 106, ,440 Net Assets Retail 588, ,989 Underwriting Agencies 108,154 90,965 Mortgage Broking Solutions 311, ,400 Networks 138, ,675 Other (1,108,571) (969,503) 37,396 42,526 Net Assets (excluding borrowings) Retail 588, ,505 Underwriting Agencies 108,191 91,002 Mortgage Broking Solutions 311, ,400 Networks 138, ,675 Other (33,606) 1,182 1,112,398 1,072, Operating profit The following items have been charged/(credited) in arriving at operating profit: Amortisation of intangible assets: - software costs 12,965 10,648 - other intangible assets 2,798 2,791 Depreciation on property, plant and equipment: - owned assets 6,187 6,342 - leased assets under finance leases Total depreciation, amortisation and impairment charges 21,991 19,890 Loss on disposal of fixed assets Operating lease rentals payable: - minimum lease payments - land and buildings 11,874 11,220 - other assets 985 1,178 - sub-lease receipts - land and buildings Exceptional items: (Loss)/gain on disposal of businesses and investments (11,637) 319 Group reorganisation costs (17,107) - Deal costs written off related to the previous financing structure included within Finance cost - (15,683) Total exceptional items (28,744) (15,364) Group reorganisation costs: During 2012 the Group has undertaken a change in management structure and commenced on-going reorganisation to improve its operational effectiveness and position itself for future growth. 36

38 7. Investment income Interest receivable fiduciary funds The Group s investment income arises from its holdings of cash and investments relating to fiduciary funds. Equivalent average cash and investment balances during the year amounted to 114,281k (2011: 103,330k) denominated principally in Sterling. The average return for 2012 was 0.78% (2011: 0.71%). 8. Finance income and costs Interest receivable own funds 818 1,099 Fair value gains/(losses) on financial instruments - interest rate swaps 9,538 (8,393) Interest expense: - bank and other borrowings (107,519) (96,450) - net interest rate swap (14,489) (15,252) - write off deal costs - (15,683) - finance leases (7) (23) - on overdue tax (506) (115) - other - (3) Finance costs net (112,165) (134,820) Finance costs (122,521) (135,919) Finance income 10,356 1,099 Finance costs net (112,165) (134,820) 9. Employee information 9.1 Salaries and associated expenses Wages and salaries 169, ,475 Social security costs 19,120 17,422 Other pension costs 6,781 6,485 Cash settled share-based payments: - Share appreciation rights 1, Social security costs related to cash settled share-based payments , , Analysis of employees Number of persons employed by the Group during the year: Administration 5,334 5, Key management compensation Key management personnel are defined as the members of the Executive Management and Board for the year ended 31 December Their compensation was as follows for the years ended 31 December 2012 and 2011: Fees, salaries and other short-term benefits 6,808 5,738 Post-employment benefits Share based compensation

39 9. Employee information (continued) 9.4 Directors Remuneration Aggregate emoluments 4,220 4,243 Company contributions to money purchase pension scheme Compensation for loss of office Paid to third parties for directors services ,447 4,819 The aggregate emoluments of the highest paid director were 1,967,820 (2011: 2,419,812) and company pension contributions of 147,205 (2011: 37,500) were made to a money purchase scheme on his behalf. Retirement benefits are accruing to the following number of directors under: Money purchase schemes 1 2 All directors benefit from qualifying third party indemity provisions in place during the financial period and at the date of this report. 9.5 Share based payment Equity settled In March 2004, Towergate Partnership Limited, the previous parent company, established an employee share plan whereby certain directors and employees were entitled to benefit from approximately 3% of the proceeds of an exit or takeover of the Towergate group. For this purpose, approximately 3% of the capital of the company was transferred to an independent company in which the employees held restricted shares. Subsequently the scheme was amended such that the beneficiaries now hold value appreciation rights rather than restricted shares. As part of the merger with Towergate PartnershipCo Limited, the beneficiaries of the employee share plan were awarded shares in Towergate PartnershipCo Limited. On transfer there was no change in the value of the awards and the percentage holding is now approximately 1% of the capital of Towergate PartnershipCo Limited. The awards are fully vested. During the current period no new awards have been issued, forfeited, exercised or expired. The profit and loss charge for the period ended 31 December 2012 was nil (2011: nil). The company issued certain directors and employees with Ordinary S shares during the year. No shares will vest unless the Group s value on an exit exceeds the Group s value at February 2011 plus an annual compounded growth rate. The award is classified as equity-settled share based payment; measurement is based on the fair value of the award on grant date spread over the vesting period. The fair value of the award is recognised as an employee benefit with a corresponding adjustment to equity reserves. The profit and loss charge for the period ended 31 December 2012 was nil (2011: nil). A total of 3.6 million Ordinary S shares were issued during 2012 (2011: 8.8 million) and all have the same fair value. The total number of awards outstanding at the year end was 12.4 million. No awards were forfeited, exercised or expired during the year. CCV Trustees Limited was incorporated in 2007 to be run as an employee stock ownership plan (ESOP). As part of the merger with Towergate PartnershipCo Limited, the beneficiaries of the employee share plan were awarded shares in Towergate PartnershipCo Limited. On transfer there was no change in the value of the awards and the percentage holding is now approximately 0.5% of the capital of Towergate PartnershipCo Limited. The awards are fully vested. During the current period no new awards have been issued, forfeited, exercised or expired. The profit and loss charge for the period ended 31 December 2012 was nil (2011: nil) Cash settled Towergate Partnership Limited, the previous parent company, and Cullum Capital Ventures Limited, a subsidiary company, operate long term incentive plans which are restricted to employees and directors of the Group. Participants are selected on a discretionary basis and upon vesting receive a benefit based on a diluted sales price (which excludes the impact of any acquisitions) of the Group. The vesting conditions of the award are an exit, defined as 90% sale of shares, or a listing. As the timing of such an event is uncertain the awards have been deemed to vest in The fair value of the amount payable, including the company s liability to related social security costs, is recognised as an expense with a corresponding increase in liabilities. The liability is revalued at each Statement of Financial Position date, with any changes in the fair value being recognised in the profit and loss account. The number of awards issued during the year was nil (2011: nil). Share appreciation rights were granted to certain individuals formerly employed by Folgate Partnership Limited, which Towergate Partnership Limited acquired in These rights rolled over into similar rights in Towergate Partnership Limited and were deemed to have vested at acquisition. The total expense recognised for the period arising from employee share schemes are as follows in the Group: Charge / (credit) to profit and loss for the period: Cash-settled share appreciation rights 2, Utilised in year (414) - Provision for social security costs , The movement in provisions for cash-settled payments is discussed in note 22. Provisions for other liabilities and charges. The Group also operates another long term incentive plan relating to a one-off payment based on a salary multiple of certain employees which is further discussed in note 31. Commitments. 38

40 10. Auditors remuneration During the year the Group obtained the following services from the company s auditor and its associates: Fees payable to the Group s auditor and its associates for the audit of the parent company and the consolidated financial statements Fees payable to the company s auditor and its associates for other services: - the audit of the company s subsidiaries audit-related services tax services non-audit services, primarily related to the capital reorganisation within the Group. - 1,685 1,231 3, Income tax charge Total current tax (487) 544 Total deferred tax 1,847 3,017 Income tax credit 1,360 3,561 The tax on the group s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows: (Loss) before taxation (6,107) (27,016) Tax calculated at UK Corporation Tax rate of 24.5% (2011: 26.5%): 1,496 7,159 Tax effects of: Expenses not deductible for tax purposes (212) (463) Tax losses for which no deferred income tax asset was recognised (19) (4,328) Loss on disposal of subsidiaries (2,477) - Adjustments to tax in respect of prior years - current tax (455) 2,061 Adjustments to tax in respect of prior years - deferred tax 4,674 - Others - including UK tax rate change (1,647) (868) Income tax credit 1,360 3,561 39

41 11. Income tax charge (continued) Future tax impacts The Budget on 20 March 2013 announced that the UK corporation tax rate will reduce to 20% by A reduction in the rate from 26% to 25% (effective from 1 April 2012) was substantively enacted on 5 July 2011, and further reductions to 24% (effective from 1 April 2012) and 23% (effective from 1 April 2013) were substantively enacted on 26 March 2012 and 3 July 2012 respectively. This will reduce the company s future current tax charge accordingly. The deferred tax asset at 31 December 2012 has been calculated based on the rate of 23% substantively enacted at the Statement of Financial Position date. It has not yet been possible to quantify the full anticipated effect of the announced further 3% rate reduction, although this will further reduce the company s future current tax charge and reduce the company s deferred tax asset accordingly 12. Intangible assets Commission Customer Trade Computer Goodwill buy outs relationships names software Total 2012 Cost at 1 January ,155,722 18,490 3, ,078 1,233,809 Additions - 3, ,244 20,602 On acquisitions in year 22,666-9, ,206 Disposals (19,413) (19,413) At 31 December ,178,388 21,848 12, ,909 1,267,204 Amortisation at 1 January ,524 12, , ,698 Charge for the year - 1, ,965 15,763 Disposals (9,564) (9,564) At 31 December ,524 14, , ,897 At 31st December 2012 Cost 1,178,388 21,848 12, ,909 1,267,204 Accumulated amortisation (139,524) (14,768) (924) (375) (30,306) (185,897) Closing net book amount 1,038,864 7,080 11, ,603 1,081, Cost at 1 January ,048,356 17, ,604 1,108,003 Additions ,320 20,126 On acquisitions in year 107,366-3, , ,657 Disposals (9,977) (9,977) At 31 December ,155,722 18,490 3, ,078 1,233,809 Amortisation at 1 January ,524 10, , ,096 Charge for the year - 2, ,648 13,439 Disposals (9,837) (9,837) At 31 December ,524 12, , ,698 At 31st December 2011 Cost 1,155,722 18,490 3, ,078 1,233,809 Accumulated amortisation (139,524) (12,787) (153) (329) (26,905) (179,698) Closing net book amount 1,016,198 5,703 2, ,173 1,054,111 Goodwill is allocated to the Group s cash-generating units (CGUs). A summary of the goodwill allocation is presented below: At 31 December At 31 December Retail 514, ,719 Underwriting Agencies 95,663 95,463 Mortgage Broking Solutions 314, ,385 Networks 114, ,631 Total 1,038,864 1,016,198 40

42 12. Intangible assets (continued) In all periods there was no impairment identified. The recoverable amount of a CGU is determined based on value in use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a 5 year period. Cash flows beyond the 5 year period are extrapolated using the estimated growth rates stated below. The key assumptions used are as follows: At 31 December At 31 December Terminal value growth rate 2.5% 2.5% Discount rate Retail 12.3% 12.9% Underwriting Agencies 12.4% 13.0% Networks 12.1% 12.9% Mortgage Broking Solutions 12.3% 12.8% The terminal value growth rates used are consistent with the forecasts included in industry reports. The discount rates used are on a pre-tax basis. In all periods there is sufficient headroom in each CGU available. Therefore, a reasonably possible change in the key assumption would not result in any impairment. 13. Property, plant and equipment Land & Leasehold Furniture & Computer Fixtures & Motor buildings improvements equipment equipment fittings vehicles Total Cost at 1 January ,718 7,457 19,828 10, ,535 Additions , ,036 On acquisitions in year Disposals (98) (924) (3,185) (518) (160) (4,885) At 31 December ,084 6,983 20,549 10, ,321 Depreciation at 1 January ,003 5,541 14,052 6, ,226 Charge for the year ,250 1, ,228 Disposals - (105) (858) (2,110) (421) (152) (3,646) At 31 December ,800 5,429 15,192 7, ,808 At 31st December 2012 Cost 61 9,084 6,983 20,549 10, ,321 Accumulated depreciation (13) (4,800) (5,429) (15,192) (7,125) (249) (32,808) Closing net book amount 48 4,284 1,554 5,357 2, , Cost at 1 January ,309 7,375 23,000 10, ,839 Additions , ,951 On acquisitions in year ,740 Disposals - (35) (1,040) (7,238) (1,346) (336) (9,995) At 31 December ,718 7,457 19,828 10, , Depreciation at 1 January ,170 5,601 18,359 5, ,530 Charge for the year ,012 3,071 1, ,451 Disposals - (36) (1,072) (7,378) (962) (307) (9,755) At 31 December ,003 5,541 14,052 6, ,226 At 31st December 2011 Cost 14 8,718 7,457 19,828 10, ,535 Accumulated depreciation (13) (4,003) (5,541) (14,052) (6,292) (325) (30,226) Closing net book amount 1 4,715 1,916 5,776 3, ,309 Included above are assets held under finance leases with a net book amount of 171k (2011: 82k). 41

43 14. Investments in associates At 31 December At 31 December Opening net book amount 7,630 - Reclassification (11) - Share of losses on acquisitions in year - (129) Share of profit for the year Impairment of associate (1,023) - Disposal (3,947) - Acquisition - 7,395 Closing net book amount 2,928 7,630 The Group s interest in its principal associates, Smith and Pinching General Insurance Services Ltd; Morgan Law (Holdings) Ltd and Capital and County Insurance Brokers Ltd, are as follows: Country of Assets Liabilities Turnover Net Percentage incorporation profit held 31 December 2012 Morgan Law (Holdings) Ltd England 2,392 (2,218) 2, % 2,392 (2,218) 2, December 2011 Smith and Pinching General Insurance Services Ltd England 2,112 (1,014) 3, % Morgan Law (Holdings) Ltd England 2,639 (2,469) 2, % Capital and County Insurance Brokers Ltd England 2,396 (156) 1, % 7,147 (3,639) 8, During the year a controlling interest in Smith and Pinching General Insurance Services Ltd and Capital and Country Insurance Brokers Ltd was acquired. 15. Available for sale financial assets Unlisted investments 000 At 1 January Additions 7 Reclassification 11 Disposals (5) At 31 December At 1 January Additions - Disposals - At 31 December The cost of the available for sale financial assets above do not differ materially from their fair value. 42

44 16. Derivative financial instruments At 31 December 2012 At 31 December 2011 Assets Liabilities Assets Liabilities Interest-rate swaps - 34,020-43,559 Total Current Non-current Total - 34,020-43, ,073-34,020-41,486-34,020-43,559 The Group uses interest rate swaps to mitigate the impact of changes in interest rates. Hedge accounting is not applied. Therefore, interest rate swaps are categorised as held for trading in all periods presented. Interest rate swaps are classified as non-current if the remaining maturity is more than 12 months and as current if the maturity is less than 12 months, respectively. The notional principal amounts of the outstanding interest rate swap contracts as at 31 December 2012 were 400m (2011: 435m). 17. Trade and other receivables At 31 December At 31 December Trade receivables 46,717 47,976 Less: provision for impairment of trade receivables (1,455) (1,936) Trade receivables - net 45,262 46,040 Prepayments and accrued income 19,261 15,907 Other debtors 20,630 13,547 Deferred consideration receivable ,243 75,629 As at 31 December 2012, the Group had exposures to individual trade counterparties within trade receivables. In accordance with Group policy, Group operating companies continually monitor exposures against credit limits and concentration of risk. No individual trade counterparty credit exposure is considered significant in the ordinary course of trading activity. Management does not expect any significant losses from nonperformance by trade counterparties that have not been provided for. Movements on the group provision for impairment of trade receivables are as follows: At 1 January (1,936) (1,084) Provisions acquired - (184) Provisions for receivables impairment (457) (763) Receivables written off during the year as uncollectible Unused amounts reversed - - At 31 December (1,455) (1,936) The creation and release of provision for impaired receivables have been included in other operating costs in the income statement. The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The group does not hold any collateral as security. The following table sets forth details of the age of trade receivables that are not overdue as well as an analysis of overdue amounts impaired and provided for. 43

45 17. Trade and other receivables (continued) Trade Provision for Net trade receivables impairment receivables At 31 December Not overdue 21,183-21,183 Past due not more than three months 23,382-23,382 Past due more than three months and not more than six months 1,349 (652) 697 Past due more than six months but not more than a year 407 (407) - Past due more than a year 396 (396) - 46,717 (1,455) 45,262 At 31 December Not overdue 8,652-8,652 Past due not more than three months 35,220-35,220 Past due more than three months and not more than six months 3,585 (1,417) 2,168 Past due more than six months but not more than a year 430 (430) - Past due more than a year 89 (89) - 47,976 (1,936) 46, Cash and cash equivalents At 31 December At 31 December Cash and cash equivalents 208, , , ,089 Fiduciary 131, ,196 Own funds 76,941 99, , ,089 Included in the Group s own funds is 25,000,000 (2011: 25,000,000) of restricted cash kept in trust accounts for purposes of solvency and capital adequacy requirements imposed by the FCA. Pursuant to these regulatory requirements established by the FCA applicable to the insurance broking industry, the Group holds cash in the trust accounts for the purpose of ensuring funds are available to pay any costs and expenses necessary to achieve an orderly winding-up of the Group s business in the event its broking operations cease to operate or are otherwise closed down. The amount of cash required to be held is determined from time to time by the FCA in accordance with what it considers to be sufficient in order to pay any such costs and expenses. Fiduciary funds represent client money used to pay premiums to underwriters, to settle claims to policyholders and to defray commissions and other income. They are not available for general corporate purposes. Fiduciary funds of 15,000,000 (2011: 15,000,000) are placed at bank as deposits. 19. Trade and other payables At 31 December At 31 December Current Insurance creditors 131, ,197 Social security and other taxes 4,966 5,207 Other creditors 22,480 12,891 Interest payable 33,518 32,313 Deferred consideration 13,249 12,236 Redemption liability on non-controlling interest put options 687 5,505 Accruals and deferred income 27,204 40, , ,122 Non current Other creditors Deferred consideration 9,284 7,462 Redemption liability on non-controlling interest put options 7,414 6,099 Accruals and deferred income 2,163 10,379 18,861 24,164 44

46 19. Trade and other payables (continued) In accruals and deferred income is 5,448k (2011: 6,147k) of revenue deferred to meet post placement and claims handling costs of business Redemption liability on non-controlling put options relates to options to acquire the remaining interests in entities where the Group is the controlling party. The liability is recognised at fair value. 20. Borrowings At 31 December At 31 December Current Loan Notes Bank Borrowing 16,029 19,241 Other loans 1,700 1,848 Finance Lease Liabilities ,851 21,191 Non Current Loan Notes 129, ,107 Bank Borrowing 334, ,605 Senior secured notes 247, ,000 Senior notes 290, ,000 Other loans 54,667 51,313 Finance Lease Liabilities ,056,151 1,009,047 Total Borrowings 1,075,002 1,030, Borrowings - excluding finance lease liabilities The carrying amounts of the group s borrowings are denominated in Sterling in all periods presented. Group refinancing in 2011: On 11 February 2011 Towergate Finance Plc, a fellow subsidiary company, refinanced the Group s borrowings and existing borrowings at that date were repaid. As part of the refinancing new loan facilities with a syndicate of banks, led by Lloyds Banking Group plc, were put in place and Senior Secured Notes and Senior Notes were issued by Towergate Finance Plc. Guarantees/ secured borrowings: A debenture has been granted over the shares and the assets of Towergate Finance plc and its material subsidiaries in favour of the lenders to the loan facility and the Senior Secured noteholders (the Secured Parties ), under the terms of which all monies due or which may become due from Towergate Finance Plc, or other group companies as listed in note 31. Commitments, to the Secured Parties, are guaranteed. The amount due by group companies at 31 December 2012 was milion. Prior to the borrowings noted above, on 1 November 2006 the parent company at the time, Towergate Partnership Limited, refinanced its existing borrowings with a syndicate of banks, led by the Bank of Scotland and Lloyds TSB ( the Banks ). A guarantee and debenture was granted over the shares and assets of Towergate Partnership Limited in favour of the Banks, under the terms of which all monies due or which may have become due from Towergate Partnership Limited, or other group companies listed below, to the Banks, were guaranteed. The amount due by group companies at 31 December 2011 was million. Refer to note 31. Commitments for more information. At 31 December At 31 December Maturity of borrowings In one year or less, or on demand 18,637 21,089 Between 1 and 2 years 31,565 41,579 Between 2 and 5 years 330,707 95,849 Over 5 years 693, ,597 1,074,775 1,030,114 The borrowings bear average coupons of 9.35% (2011: 9.27%) annually. 45

47 20. Borrowings (continued) The exposure of the borrowings of the Group to interest rate changes and the contractual re-pricing dates at the end of the reporting period are as follows: 6 months or less Fixed rate Total 000 At 31 December , ,687 1,074,775 At 31 December , ,268 1,030,114 Fair value of borrowings Current borrowings: The fair value of current borrowings equals their carrying amount, as the impact of discounting is not significant. Non-current borrowings: The carrying amounts of non-current bank borrowings do not differ materially from their fair values, as the interest rate formula is based on LIBOR that is contractually re-priced every six months or less. The fair value of quoted non-current borrowings at fixed rates as of 31 December 2012 based on quoted market prices are as follows: At 31 December 2012 At 31 December 2011 Carrying Fair Carrying Fair Amount Value Amount Value Non Current Senior secured notes 247, , , ,400 Senior notes 290, , , , , , , ,852 The loan notes and other loans are not quoted and we consider the carrying value to approximate to fair value. Undrawn borrowing facilities: As at 31 December 2012, the Group has undrawn acquisition facilities of 32.6 m (2011: 68.3m) and undrawn revolving credit facilities of 10m (2011: 10 million) Finance lease liabilities Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. At 31 December At 31 December Gross finance lease liabilities minimum lease payments: No later than 1 year Later than 1 year and not later than 5 years Future finance charges on finance leases (13) (7) Present value of finance lease liabilities At 31 December At 31 December The present value of finance lease liabilities is as follows: No later than 1 year Later than 1year and not later than 5 years

48 21. Deferred income taxes The analysis of current tax assets and current tax liabilities is as follows: At 31 December At 31 December Corporation tax receivable Current tax liabilities - (11,381) The analysis of deferred tax assets and deferred tax liabilities due to maturity is as follows: At 31 December At 31 December Deferred tax assets - Deferred tax assets to be recovered after more than 12 months 14,246 14,055 - Deferred tax assets to be recovered within 12 months Deferred tax assets 14,246 14,594 Deferred tax liabilities - Deferred tax liability to be recovered after more than 12 months Deferred tax liability to be recovered within 12 months - - Deferred tax liabilities - - Deferred tax assets (net) 14,246 14,594 The movement in deferred income tax assets and liabilities during the year is as follows: At 31 December At 31 December At 1 January 14,594 11,558 Deferred tax income 1,847 3,017 Deferred tax asset recognised in business combinations (2,195) 19 At 31 December 14,246 14,594 The analysis of deferred income tax assets and deferred income tax liabilities, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: Deferred tax assets At 31 December At 31 December Property, plant and equipment 6,394 2,858 Derivative financial instruments 7,825 11,325 Share based payments Other 1, Deferred tax assets before offsetting 17,032 15,373 Set off against deferred tax liabilities (2,786) (779) Deferred tax assets 14,246 14,594 Deferred tax liabilities At 31 December At 31 December Intangible assets 2, Deferred tax liabilities before offsetting 2, Set off against deferred tax assets (2,786) (779) Deferred tax liabilities - - Deferred tax assets (net) 14,246 14,594 Deferred income tax assets are recognised to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Group did not recognise deferred income tax assets of 3,829k (2011; 4,328k) in respect of deductable temporary differences. 47

49 22. Provisions for other liabilities and charges Share based payment E&O Claims Other provision provision provision provisions Total 000 At 1 January ,243 2, ,492 Charged/(credited) to the Income statement - Additional provisions 2, ,741 - Unused amounts released Used during the year (414) (968) (11) (55) (1,448) Acquisitions At 31 December ,146 2, ,785 At 1 January ,916 1, ,405 Charged/(credited) to the Income statement - Additional provisions (26) (203) 1,057 - Unused amounts released Used during the year - (1,033) (72) (46) (1,151) Acquisitions 899 1, ,181 At 31 December ,243 2, ,492 At 31 December At 31 December Analysis of total provisions: Non-current - to be utilised in more than one year 7,751 6,491 Current - to be utilised within one year 1,034 1,001 8,785 7,492 Share based payment provision is further discussed under note 9. Employee information. In the normal course of business, the Group may receive claims in respect of errors and omissions. A provision has been made in respect of outstanding errors and omissions claims. Claims provision of 213,295 (2011: 198,321) arises from the underwriting business of Folgate Insurance Company Limited, which is in run off. Other provisions are principally a provision for business restructure. 23. Pension scheme The Group operates defined contribution pension schemes. The pension cost charge for the period represents contributions payable by the Group to the fund and amounted to 6,780,577 (2011: 6,484,620). At the period end outstanding pension contributions due were 492,197 (2011: 461,538). The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. 48

50 24. Share capital and premium At 31 December At 31 December Allotted, called up and fully paid shares Equity: 18,941,206 Ordinary C1 shares of each 2 2 Equity: 21,703,177 Ordinary C2 shares of each 2 2 Equity: 12,401,500 Ordinary S shares of each 1 1 Equity: 81,058,794 Ordinary T1 shares of each 8 8 Equity: 17,207,946 Ordinary T2A shares of each 2 2 Equity: 59,484 Ordinary T2B shares of each - - Equity: 75,611,221 Ordinary T2C shares of each 8 8 Equity: 1 Z share of Equity: 21,703,177 Preferred C shares of each 2 2 Equity: 17,207,946 Preferred TA shares of each 2 2 Equity: 59,484 Preferred TB shares of each - - Equity: 75,611,221 Preferred TC shares of each 7 7 Equity: Junior preferred ordinary A, B, C shares of each - - Equity: Subordinated junior preferred ordinary shares of 1 each % cumulative preference shares of 1 each - - Total Ordinary C1, C2, T1, T2A, T2B and T2C shares carry all voting rights and are entitled to receive a dividend from profits remaining for distribution after the Preferred shareholders. On winding up the holders are entitled to a distribution after the Preferred shareholders, but in priority to the S and Z shareholders. Ordinary S shares carry all voting rights and are entitled to receive a dividend from profits remaining for distribution after the Preferred shareholders. On winding up the holders are entitled to a distribution after the Preferred and Ordinary C1, C2, T1, T2A, T2B and T2C shareholders, but in priority to the Z shareholders. Ordinary Z shares carry no voting rights and are not entitled to receive a dividend. On winding up the holders are entitled to a distribution after the Preferred and Ordinary C1, C2, T1, T2A, T2B, T2C and S shareholders. Preferred C, TA, TB and TC shares carry no right to receive notice of, attend, speak or vote at any general meeting. Holders are entitled to receive a dividend at the rate of 18% per annum of the paid up value of each share in priority to the ordinary shareholders. The dividends accruing to the Preferred shareholders but not declared (and not included on the Statement of Financial Position) as at 31 December 2012 amount to 35.0m (2011: 16.4m). On winding up the holders are entitled to a distribution in priority to the other classes of shares. Ordinary Preference Total share Share shares shares capital premium Total 000 At 1 January , ,672 Allotted during the year Share issue costs (288) (288) At 31 December , ,384 At 1 January , , ,020 Allotted during the year , ,662 Redemption of preference shares - (110,010) (110,010) - (110,010) At 31 December , ,672 Share issue costs relate to shares issued in

51 25. Retained earnings and other reserves Capital Retained reorganisation Capital earnings reserve redemption 000 At 1 January 2012 (424,344) 142, ,000 (Loss) for the year (4,747) - - Distribution to minority interest (158) - - Dividends paid (95) - - At 31 December 2012 (429,344) 142, ,000 At 1 January , ,043 - (Loss) for the year (23,455) - - Dividends paid (249,284) - - Distribution to controlling shareholder (68,014) - - Redemption of own shares (100,000) - 100,000 At 31 December 2011 (424,344) 142, , Non-controlling interests 000 At 1 January Acquisitions - Share of profit for the year 158 At 31 December At 1 January 2011 (35) Dissolution of company 35 Acquisition of minority 155 At 31 December Cash generated from operations Cash flows from operating activities Loss before income tax including discontinued operations (6,107) (27,016) Depreciation 6,228 6,451 Amortisation 15,763 13,439 Impairment of associates 1,023 - Fair value (losses) / gains on derivative financial instruments (9,538) 8,393 Finance costs - net 121, ,427 Non-cash movements on deferred consideration (6,953) 1,461 Share of (profit) from associates (279) (364) Losses on disposal of property, plant and equipment Gains / (losses) on disposal of businesses and investments 11,637 (319) (Increase) / decrease in trade and other receivables (10,527) 15,122 Increase / (decrease) in trade and other payables - excluding insurance broking balances (15,847) (27,584) Increase in provisions for liabilities and charges 2,741 1,057 Net cash inflow from operations 109, ,067 50

52 28. Business combinations Across both 2011 and 2012, several acquisitions which were accounted for as business combinations, were completed either directly by the Company or through subsidiaries of the Company as part of the continuing growth strategy. Acquisitions in 2012 A number of third party acquisitions were made in 2012 as part of the Group s growth strategy. There were no individually significant business combinations for the year ending 31 December Stated below is the aggregate balances of business combinations made in the year ending 31 December Goodwill of 22.7m (2011: 107.4m) was recognised from business combinations. Consideration 000 Purchase consideration - Initial consideration 17,994 - Deferred consideration 11,354 - Fair value of previous equity interest in acquired company 3,947 Total consideration 33,295 Recognised amounts of identifiable assets acquired and liabilities assumed: Fair value 000 Intangible assets - Customer relationships 9,289 Intangible assets - Trade names 251 Property, plant and equipment 635 Trade and other receivables 1,818 Cash and cash equivalents 4,914 Trade and other payables (4,084) Deferred tax liabilities (2,194) Total identifiable net assets 10,629 Goodwill 22,666 33,295 Total transaction costs amounting of 282k are expensed as incurred Common Control transactions The acquisitions of Cullum Capital Ventures Limited, Countrywide Insurance Management Limited and Powerplace Insurance Services Limited as at 11 February 2011 are acquisitions under common control and predecessor accounting has been used for the transaction. Under predecessor accounting, no assets or liabilities are restated to their fair values and the Group incorporates predecessor carrying values. Therefore, no new goodwill is recognised under predecessor accounting. Historical goodwill of 101.6m was recognised from these business combinations. The excess of the purchase consideration over the net assets of the acquired entities, amounting to 68m, is recognised as a distribution to controlling shareholder within the retained earning reserve, refer to note 25. Retained earnings and other reserves. The results of these acquired companies are included in the consolidated profit and loss account from the date of acquisition and are not included in the prior year comparative results. The acquired business contributed revenue of 59,169,198 and a net profit of 2,117,521 to the Group for the period since acquisition. If the acquisition had taken place on 1 January 2011 the contribution to Group revenue and net profit would have been 63,852,529 and 1,445,118 respectively. Total transaction costs amounting to 206k are expensed as incurred. 51

53 28. Business combinations (continued) Consideration 000 Purchase consideration - Initial consideration 35,519 - Minority interest in the net assets acquired Shares allotted 84,872 Total consideration 120,546 Recognised amounts of identifiable assets acquired and liabilities assumed: Fair value 000 Goodwill (as previously stated in the accounts of the acquired companies) 101,574 Intangible assets 5,131 Property, plant and equipment 1,620 Investments in Associates 7,395 Deferred tax asset 840 Trade and other receivables 34,290 Cash and cash equivalents 21,813 Derivative financial instruments (3,231) Trade and other payables (114,719) Provisions for other liabilities and charges (2,181) Total identifiable net assets 52,532 Excess of total consideration over total identifiable net assets 68, Third party acquisitions There were no individually significant business combinations for the year ending 31 December Stated below are the aggregate balances of business combinations made in the year ending 31 December Goodwill of 5.8m was recognised from these business combinations. Consideration 000 Purchase consideration - Initial consideration 5,082 - Deferred consideration 3,388 Total consideration 8,470 Recognised amounts of identifiable assets acquired and liabilities assumed: Fair value 000 Intangible assets - Customer relationships 3,068 Intangible assets - Trade names 92 Property, plant and equipment 120 Trade and other receivables 2,582 Cash and cash equivalents 1,372 Trade and other payables (3,735) Deferred tax liabilities (822) Total identifiable net assets 2,677 Goodwill 5,793 8,470 Total transaction costs amounting of 298k are expensed as incurred. 52

54 29. Business disposals Disposals in 2012 The Group disposed of PowerPlace Insurance Services Limited during the year ended 31 December The total loss on disposal amounted to 11,637k. Disposals in 2011 The Group disposed of two portfolios through subsidiaries for the year ending 31 December There were no individually significant disposals and total profit on disposal amounted to 319k. 30. Related-party transactions The principal shareholders of the Group are Mr Peter Cullum, who owns 32.4% of the company s shares with voting rights and Advent International, a global private equity firm, which holds 44.1% of the shares. The remaining 23.5% of the shares are widely dispersed. Mr Peter Cullum and Advent International each have significant influence through their voting rights in the company. The following transactions were carried out with related parties: (a) Sales of goods and services Sales of services: - Domestic and General (b) Purchases of services Purchases of services: - Rental services from Mr Peter Cullum 2,690 2,700 - Open International Limited 611 1,100 - Worldpay Advent International 325 5,406 3,984 9,528 All sales and purchases of services with related parties are conducted on an arms length basis. Sales of services to Domestic and General, a company related to Advent International represent gross written premium including insurance premium tax on insurance placed on behalf of Domestic and General. Rebates are given on the insurance premium charged. Open International Limited, a company related to Mr Peter Cullum, was engaged to provide software services to the insurance business. Mr Peter Cullum is a member of the key management personnel for Towergate PartnershipCo group and the Broomco (4099) group. Mr Peter Cullum, directly or indirectly, acts as the landlord of fourteen of the Group s properties. Of these fourteen properties, six are leased from Cullum White Properties LLP, a company of which Mr Peter Cullum is a member, three are leased directly from Mr Peter Cullum and Mrs Ann Cullum, one is leased from Cullum Commercial Properties LLP, a company of which Mr Peter Cullum is a member and one is leased from Broker Continuity Planning Limited, a company of which Mr Peter Cullum is the majority shareholder. A further two are leased from Economic No1 Unapproved Retirement Trust, a trust company of which Mr Peter Cullum is a beneficiary and one is leased from Cullum Commercial Properties LLP, a company of which Mr Peter Cullum is a member and Swilken Properties LLP, a company not connected to Mr Peter Cullum. The total commitments under these non-cancellable operating leases which expire within one year are 2.7m ( m) those which expire between 2 to 5 years are 9.6m ( m) and those which expire over 5 years is 7.2m ( m). The Group paid an aggregate amount of 2.7m in rent to Mr Peter Cullum, directly and indirectly, for the period ended 31 December 2012 (2011: 2.7 million). The services from Worldpay, a company related to Advent International represent credit card merchant service fees incurred and the services from Advent International relate to management charges and reimbursement of expenses incurred. (c) Sale of Powerplace Insurance Services Ltd On the 31 December 2012 a subsidiary, Powerplace Insurance Services Ltd, was sold to Open International Limited. The subsidiary was disposed for no consideration. Please refer to note 29. Business disposals for more information. (d) Key management compensation Key management compensation is discussed under note 9. Employee information. (e) Directors Directors compensation is discussed under note 9. Employee information. 53

55 30. Related-party transactions (continued) (f) Year-end balances arising from sales/purchases of goods/services At 31 December At 31 December Payables to related parties (note 19): Open International Limited Worldpay Advent International Domestic and General 2 - The receivables from related parties arise mainly from sale transactions and are due 30 days after the date of sales. The receivables are unsecured in nature and bear no interest. No provisions are held against receivables from related parties (2011: nil). The payables to related parties arise mainly from purchase transactions and are due 30 days after the date of purchase. The payables bear no interest. (g) Loans to related parties There were no loans to related parties for the year ending 31 December (h) Loans from related parties On 27 June 2012, borrowing owed by the CCV group of companies on a loan facility of 10,000,000 from Mr Peter Cullum were refinanced and the loan was repaid in full. The amount owed to Mr Peter Cullum at 31 December 2012 was nil (2011: 5,733,806). On 26 June 2012, Towergate Finance Plc Limited, a subsidiary company, drew down on a loan facility of 7,266,000 from Broomco (4251) Limited, a company in which Mr Peter Cullum is sole shareholder. The amount owed at 31 December 2012 was 6,902,700 (2011: nil). The loan is repayable in instalments until 4 February Interest is charges at the higher of LIBOR or 1.5% %. During the year ending 31 December 2011, Advent International extended unsecured loan notes at a rate of 18% per annum, repayable in The amount outstanding as at 31 December 2012 was 123,167,804 (2011: 104,335,890). See note 21. Borrowings for more information. Management invested in 12% loan notes in Paymentshield Group Holdings on 8 March With the 2011 refinancing, previous loan notes in Paymentshield Group Holdings were settled in March 2011 by loans in Towergate Holdings I and shares in Towergate PartnershipCo Limited. The loans in Towergate Holdings I are payable in 2019, with interest at 10% per annum. As at 31 December 2012, the loans outstanding in Towergate Holdings I were 33,603,892 (2011: 30,431,400). Management held minority C shares, granted on 19 February 2010 in Towergate Financial Group Limited under put and call agreements based on the value of Towergate Financial Group Limited. As at 31 December 2012, the value of these put and call agreements was 1,106,201 (2011: 2,814,349). 31. Commitments Operating lease commitments - where a group company is the lessee The future aggregate minimum lease payments under a non-cancellable operating leases are as follows: At 31 December At 31 December Property Not later than 1 year 12,895 11,725 Later than 1 year and not later than 5 years 31,429 34,452 Later than 5 years 14,563 20,411 Total 58,887 66,588 Equipment Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years - - Total 1,322 1,326 Total Not later than 1 year 13,729 12,618 Later than 1 year and not later than 5 years 31,917 34,885 Later than 5 years 14,563 20,411 Total 60,209 67,914 54

56 31. Commitments (continued) Sub-leases Operating lease commitments where a group company is the lessor The future aggregate minimum lease payments under a non-cancellable operating sub-leases are as follows: At 31 December At 31 December Property Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years - 87 Total 450 1,085 Long term incentive plan The Group operates a cash-settled long term incentive plan for certain employees. Payments are made under the scheme on a change in control event basis and the amounts paid are calculated using performance related measures. The maximum amount payable under the plan as at 31 December 2012 is 28.8m. Legal and other loss contingencies Guarantees On 11 February 2011 Towergate Finance Plc, a subsidiary company, refinanced the group s borrowings and existing bank debt at that date was repaid. As part of the refinancing new loan facilities with a syndicate of banks, led by Lloyds Banking Group plc ( Towergate Facilities ) were put in place and Senior Secured Notes and Senior Notes were issued by Towergate Finance Plc. On 27 June 2012 the borrowings held by the CCV group of companies were refinanced. Further Senior Secured Notes were issued by Towergate Finance plc and an incremental facility contained in the Towergate Facilities was invoked to cover further loans from Lloyds Banking Group plc, Broomco (4251) Limited and Sun Alliance Insurance Overseas Limited. A debenture has been granted over the shares and the assets of Towergate Finance plc/towergate Insurance Limited and material subsidiaries in favour of the lenders to the Towergate Facilities (including the incremental facility for the loans Lloyds Banking Group plc, Broomco (4251) Limited and Sun Alliance Insurance Overseas Limited) and the Senior Secured noteholders (the Secured Parties ), under the terms of which all monies due or which may become due from Towergate Finance Plc/Towergate Insurance Limited, or other group companies listed below, to the Secured Parties, are guaranteed. The amount due by group companies at 31 December 2012 was 638,524,000 (2011: 560,475,000). The group companies involved included principally: Towergate Finance plc Towergate Holdings II Limited Towergate Insurance Limited Fusion Insurance Holdings Limited Fusion Insurance Services Limited The Hayward Holding Group Limited Hayward Aviation Limited Paymentshield Group Holdings Limited Paymentshield Holdings Limited Paymentshield Limited Broker Network Holdings Limited The Broker Network Limited The TF Bell Group Limited TF Bell Holdings Limited Townfrost Limited Towergate Underwriting Group Limited Towergate Risk Solutions Limited Towergate London Market Limited Oyster Risk Solutions Limited TL Risk Solutions Limited Cullum Capital Ventures Limited Four Counties Finance Limited Capital & County Insurance Brokers Limited Three Counties Insurance Brokers Limited CCV Risk Solutions Limited Just Insurance Brokers Limited Cox Lee & Co Limited Portishead Insurance Management Limited HLI (UK) Limited Berkeley Alexander Limited Protectagroup Acquisitions Limited Protectagroup Holdings Limited Protectagroup Limited Crawford Davis Insurance Consultants Limited Roundcroft Limited Richard V Wallis & Co Limited Moffatt & Co Limited Powerplace Insurance Services Limited Countrywide Insurance Management Limited Eclipse Park Acquisitions Limited Managing Agents Reference Assistance Services Limited E&O Provisions In the normal course of business, the group may receive claims in respect of errors and omissions. No material adverse financial impact is expected to arise from these claims. 55

57 32. Principal subsidiary and associated companies The following were the principal subsidiary and associated undertakings at 31 December Unless otherwise shown, the capital of each company is wholly-owned, is in ordinary shares and the principal country of operation is the country of incorporation/registration. Except where indicated, 100% of the voting rights are held directly or indirectly by Towergate PartnershipCo Limited. (* denotes direct holding) Country of Nature of Nature of incorporation holding principal activity Principal subidiary undertakings Towergate Partnership Limited* England Ordinary Holding company Cullum Capital Ventures Limited England Ordinary Holding company Towergate Holdings I Plc England Ordinary Holding company Towergate Holdings II Limited England Ordinary Holding company Towergate Finance Plc England Ordinary Holding company Towergate Insurance Limited England Ordinary Holding company Folgate Insurance Company Limited England Ordinary Run off insurance company Fusion Insurance Holdings Limited England Ordinary Holding company Fusion Insurance Services Limited England Ordinary Insurance broking Towergate Underwriting Group Limited England Ordinary Insurance broking Towergate London Market Limited England Ordinary Insurance broking Hayward Holding Group Limited (90% owned) England Ordinary Holding company Hayward Aviation Limited (90% owned) England Ordinary Insurance broking MP Bolshaw & Co Limited (90% owned) England Ordinary Insurance broking Towergate Risk Solutions Limited England Ordinary Holding company Broker Network Holdings Limited England Ordinary Holding company Oyster Risk Solutions Limited (87.5% owned) England Ordinary Insurance broking Broker Network Limited England Ordinary Insurance broking TL Risk Solutions Limited England Ordinary Insurance broking Paymentshield Group Holdings Limited England Ordinary Holding company Paymentshield Holdings Limited England Ordinary Holding company Paymentshield Limited England Ordinary General & life insurance products Paymentshield Life Underwriting Services Limited England Ordinary Life assurance & mortgage products HS428 Limited England Ordinary Business insurance consultancy Oak Affinity Consultancy Limited England Ordinary Business insurance consultancy Towergate Financial (Group) Limited (71% owned) England Ordinary Holding company Towergate Financial (Scotland) Holdings Limited England Ordinary Holding company Towergate Financial (East) Holdings Limited (97% owned) England Ordinary Holding company Towergate Financial (North) Holdings Limited (91% owned) England Ordinary Holding company Towergate Financial (West) Holdings Limited (84% owned) England Ordinary Holding company Towergate Financial (Huddersfield) Intermediate Limited (91% owned) England Ordinary Holding company Towergate Financial (East) Intermediate Limited (97% owned) England Ordinary Holding company Towergate Financial (Scotland) Limited Scotland Ordinary Independent financial advisors Towergate Financial (North) Limited (91% owned) England Ordinary & Preference Independent financial advisors Towergate Financial (East) Limited (97% owned) England Ordinary & Preference Independent financial advisors Towergate Financial (West) Limited (84% owned) England Ordinary & Preference Independent financial advisors Towergate Financial (London) Limited (86% owned) England Ordinary Independent financial advisors Moray Firth Insurance Brokers Limited (90% owned) Scotland Ordinary Insurance broking Managing Agents Reference Assistance Services Limited England Ordinary Insurance broking D Lawson & Son (Insurances) Limited England Ordinary Insurance broking Dawson Whyte Limited Northern Ireland Ordinary Insurance broking J N Craig Limited Northern Ireland Ordinary Insurance broking Donaldson & Kenny Limited Northern Ireland Ordinary Insurance broking General Insurance Brokers Limited Northern Ireland Ordinary Insurance broking Grenville Westinsure Limited England Ordinary Insurance broking Harry Fort Holdings Limited England Ordinary Holding company Harry Fort Insurance Brokers Limited England Ordinary Insurance broking Countrywide Insurance Management Limited England Ordinary Insurance broking CCV Risk Solutions Limited England Ordinary Insurance broking Execcover Limited (48% owned) England Ordinary Insurance broking Fenton Insurance Solutions Limited (85% owned) England Ordinary Insurance broking Oyster Property Insurance Specialists Limited (67% owned) England Ordinary Insurance broking/underwriting Arthur Marsh & Son Limited (95.564% owned) England Ordinary Insurance broking Smith and Pinching General Insurance Services Limited England Ordinary Insurance broking 56

58 32. Principal subsidiary and associated companies (continued) Morgan Law Limited (40% owned) England Ordinary Insurance broking Chorlton Cloughley Group Limited (95% owned) England Ordinary Insurance broking Berkeley Alexander Limited England Ordinary Insurance broking Four Counties Insurance Brokers Limited (95% owned) England Ordinary Insurance broking Capital and County Insurance Brokers Limited England Ordinary Insurance broking CCV Trustees Limited England Ordinary Trust Walter Ainsbury & Son Limited (85% owned) England Ordinary Insurance broking Bishop Skinner Insurance Brokers Limited (85% owned) England Ordinary Insurance broking BIB (Darlington) Limited (95% owned) England Ordinary Insurance broking BIB Underwriters Limited (95% owned) England Ordinary Underwriting Antur Insurance Services Limited (80% owned) England Ordinary Insurance broking JBI International Insurance Brokers Limited England Ordinary Insurance broking Suddard Davies Associates Limited England Ordinary Insurance broking Sullivan Garrett Limited England Ordinary Insurance broking Townfrost Limited England Ordinary Insurance broking 57

59 Company Balance Sheet Notes ASSETS Fixed assets Investments 3 451, , , ,064 Current assets Debtors 4 18,059 12,999 Cash at bank and in hand ,060 13,000 Total assets 469, ,064 Liabilities Capital and reserves Shareholders funds Called up share capital Share premium 8 224, ,638 Profit and loss account 8 6,424 (16,888) Merger reserve/other reserves 8 108, ,181 Total capital and reserves 338, ,965 Creditors Amounts falling due within one year 5 7,678 6,763 Amounts falling due after more than one year 6 123, , , ,099 Total liabilities 469, ,064 The notes on pages 59 to 61 form an integral part of these consolidated financial statements. Approved by the Board on 17 April 2013 and signed on its behalf by: M Hodges Company Reconciliation of movements in shareholders funds Notes, Profit / (Loss) for the financial year 8 23,312 (16,888) Increase in share capital 8-34 Premium on share issue 8 (288) 224,638 Merger reserve on premium on share issue 8-108,181 Net increase in shareholders funds 23, ,965 Opening shareholders funds 315,965 - Closing shareholders funds 338, ,965 58

60 1. General information Towergate PartnershipCo Limited ( the Company ) is incorporated on the 23 December 2010 as a private company limited by shares with registered number The company is incorporated and domiciled in the UK. The address of its registered office is Tower Gate House, Eclipse Park Sittingbourne Road, Maidstone, ME14 3EN. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated Basis of preparation The financial statements of the Company have been prepared in accordance UK GAAP and the Companies Act 2006 applicable to Companies reporting under UK GAAP. The financial statements have been prepared under the historical cost convention. Under s408 of the Companies Act 2006 the company is exempt from the requirement to present its own profit and loss account. 2.2 Investments In the Company s financial statements investments in subsidiary undertakings are stated at cost less amounts written off. The company recognises the anticipated settlement value in the cost of investment in the relevant subsidiary with an associated deferred consideration liability. Remeasurement of the settlement value is recognised in the cost of investment in the Company s financial statements. 2.3 Cash and liquid resources Cash, comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand. Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Liquid resources comprise term deposits of less than one year (other than cash), government securities and investments in money market managed funds. 3. Investments Cost At beginning of year 414,064 Additions 119,012 Disposals (81,301) At end of year 451,775 Net book value at 31 December ,775 Net book value at 31 December , Debtors Amounts owed by Group undertakings 12,714 12,999 Corporation tax 5,345 18,059-12, Creditors: amounts falling due within one year Amounts owed by Group undertakings 6,757 6,617 Other creditors Accruals and deferred income ,678 6, Creditors: amounts falling due after more than one year Loan notes 123, ,336 Analysis of debt Over 5 years 123, ,336 59

61 7. Called up share capital Allotted, called up and fully paid shares Equity: 18,941,206 Ordinary C1 shares of each 2 2 Equity: 21,703,177 Ordinary C2 shares of each 2 2 Equity: 12,401,500 Ordinary S shares of each 1 1 Equity: 81,058,794 Ordinary T1 shares of each 8 8 Equity: 17,207,946 Ordinary T2A shares of each 2 2 Equity: 59,484 Ordinary T2B shares of each - - Equity: 75,611,221 Ordinary T2C shares of each 8 8 Equity: 1 Z share of Equity: 21,703,177 Preferred C shares of each 2 2 Equity: 17,207,946 Preferred TA shares of each 2 2 Equity: 59,484 Preferred TB shares of each - - Equity: 75,611,221 Preferred TC shares of each 7 7 Equity: Subordinated junior preferred ordinary shares of 1 each % cumulative preference shares of 1 each - - Total Ordinary C1, C2, T1, T2A, T2B, T2C and Z shares carry all voting rights and are entitled to receive a dividend from profits remaining for distribution after the Preferred shareholders. On winding up the holders are entitled to a distribution after the Preferred shareholders, but in priority to the S and Z shareholders. Ordinary S shares carry all voting rights and are entitled to receive a dividend from profits remaining for distribution after the Preferred shareholders. On winding up the holders are entitled to a distribution after the Preferred and Ordinary C1, C2, T1, T2A, T2B and T2C shareholders, but in priority to the Z shareholders. Ordinary Z shares carry no voting rights and are not entitled to receive a dividend. On winding up the holders are entitled to a distribution after the Preferred and Ordinary C1, C2, T1, T2A, T2B, T2C and S shareholders. Preferred C, TA, TB and TC shares carry no right to receive notice of, attend, speak or vote at any general meeting. Holders are entitled to receive a dividend at the rate of 18% per annum of the paid up value of each share in priority to the ordinary shareholders. The dividends accruing to the Preferred shareholders but not declared (and not included on the Balance Sheet) as at 31 December 2012 amount to 18.6m (2011: 16.4m). On winding up the holders are entitled to a distribution in priority to the other classes of shares. 8. Reserves Share Share Profit & loss Merger capital premium account reserve Total 000 At 1 January ,638 (16,888) 108, ,965 Premium on share issue - (288) - - (288) Gain/ (Loss) for the period ,312-23,312 At 31 December ,350 6, , ,989 60

62 9. Related party transactions The principal shareholders of the Company are Mr Peter Cullum, who owns 32.4% of the company s shares with voting rights and Advent International, a global private equity firm, which holds 44.1% of the shares. The remaining 26.8% of the shares are widely dispersed. Mr Peter Cullum and Advent International have both significant influence through each of their voting rights in the Company. The following transactions were carried out with related parties: (a) Purchases of services Purchases of services: Advent International 325 5,406 The services from Advent International are conducted on an arms length basis and relate to management charges and reimbursement of expenses incurred. (b) Directors Remuneration Aggregate emoluments 1,586 1,053 Company contributions to money purchase pension scheme ,733 1,105 The aggregate emoluments of the highest paid director were 923,798 (2011: 526,391) and company pension contributions of 147,205 (2011: 37,500) were made to a money purchase scheme on his behalf. Retirement benefits are accruing to the following number of directors under: Money purchase schemes 1 2 All directors benefit from qualifying third party indemnity provisions in place during the financial period and at the date of this report. (c) Year-end balances arising from sales/purchases of goods/services Payables to related parties: Advent International The payables are generally due 30 days after the date of purchase. The payables bear no interest. (d) Loans from related parties During the year ending 31 December 2011, Advent International extended unsecured loan notes at a rate of 18% per annum, repayable in The amount outstanding as at 31 December 2012 was 123,167,804 (2011: 104,335,890). 61

63